A National Economy Divided

One of our nation’s many divisions and fault lines strikes Joel Kotkin as the most important. We have two economies: one is producing stuff and another is selling ideas. The first involves industry, manufacturing and energy. The second comprises the media, entertainment and the internet. Better yet, for those who work in the high tech economy, their work is clean while that of the manufacturing sector is dirty.

Thus, they feel more virtuous and more pure. About the lives of the workers at Foxconn, they do not much care.

As of now, the two economies are bifurcating, with the former leaning Republican and the latter becoming increasingly liberal and Democratic. The first is mostly located in flyover country, in Middle America. The second is concentrated on the coasts.

As a rule, people who produce stuff tend to be more practical minded. Those who traffic in ideas, or who believe that their business involves ideas, tend to be more idealistic. For these among other reasons, the first group is often drawn to the Republican Party while the latter has become increasingly Democratic.

When a Bill Gates starts intoning that we might need a socialist takeover of the government to fight global warming, you know that the tech oligarchs are all worshipping in the Church of the Liberal Pieties.

Worse yet, and ironically, the great minds of the tech oligarchs seem more susceptible to manipulation by whatever passes as serious thought. They aspire to be philosopher-kings, a class of Platonic guardians, and thus cling to whatever academic thinkers hold to be dogmatic truth. They seem to be allergic to the notion that they are businessmen like everyone else and that their work is susceptible to market forces.

Those who live by manufacturing and industry live by the verdict of the marketplace. They have never doubted the point. Those who traffic in big ideas prefer the world of abstract ideas. The plan might work; it might not work. Since they have access to capital to fund any cockamamie idea, they make money even if it does not work.

Kotkin points out that tech titan Elon Musk, to say nothing of the solar energy companies, live off of government subsidies. They do not have to live by the market, by decisions made by millions of little people. Theirs is a clean world, a confederation of great minds, where people think and code.

In the dirty world of manufacturing, and especially energy production, the government, especially when it is following liberal policies, has become an obstacle. It wants to shut down the coal industry and to repeal major parts of the Industrial Revolution… because of a prophecy. It bases its judgment on nothing an idea.

Kotkin defines the division and the growing conflict:

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.

While the collapse in the price of oil has damaged American manufacturing, the tech oligarchs are now riding high.

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.

In California, a state that is leading the world in green energy policy, the tech oligarchs have so much money that they do not really care about the cost of electricity. For everyone else in their neighborhood, the results have been calamitous:

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.

California is showing us what a post-industrial economy looks like. For reasons that escape me the people of California keep electing people who implement policies that hurt them. It is worth keeping in mind that the tech oligarchs do not have a large number of votes. What they do have, however, is near-monopoly control of the media. Rather than worry about why the people of Kansas do or do not vote their self-interest, we ought to start asking ourselves why the poor and lower middle class people of California keep voting for liberal politicians.

Kotkin describes the post-industrial political economy of California:

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.

From the point of view of the tech oligarchs Barack Obama is the perfect president. Perfect for them, that is. Since Obama is more cerebral and more self-aggrandizing, more concerned with looking smart than with the consequences of his policies, the tech oligarchs believe that he is one of them. He, of course, must believe that the tech bubble is proof positive of the greatness of idealism and the badness of pragmatic policy.

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.

The tech world is a mind over matter world. It’s a world where stuff gets manufactured, but gets manufactured over there, somewhere far, far away, where no one of their friends needs to get his hands dirty. The tech oligarchs are oblivious to the world outside of their bubble.

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.

Of course, the tech economy does not produce very much in California. It produces iPhones in China and hires programmers in India. It touts the virtue of diversity but never practices what it preaches. When the cost of energy becomes too high it moves its server farms outside of California.

Worse yet, it does not produce very many jobs. This problem characterizes the Obama economy, where, despite the low unemployment numbers, workforce participation rates are as low as they have been for decades.

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.

Kotkin asks whether it is degenerating into a civil war? After all, a house divided against itself cannot stand. I suspect that the real challenge for the tech oligarchs is to continue plying their rough magic on the populace at large, exercising enough mind control to get people to vote for the oligarchy’s interests and not their own.