Why Top Talent Must Flee Silicon Valley

In order for tech workers to cash out on home equity, Proposition 13 forces them to move to another state.

Theme: Real estate refugees

Subject Article: "Silicon Valley is Going to Retrench in 2016."

Other Links: 1. "Are High Housing Costs Forcing Talent to Flee Silicon Valley?"
2. "The Lock-in Effect of California's Proposition 13."
3. "Tesla says Nevada battery plant on track despite report of delay."

Postscript: Expensive Bay Area real estate does much more to deter talent from moving there than it does to push it out. In fact, the tech industry might have converged faster nationally if Proposition 13 didn't discourage relocation. Supply isn't distorted as much as demand is. As out of state tech markets become more attractive to talent, the Prop 13 effect will flip from an agent of retention to one of exodus.

Exploiting Puerto Rico's Fuzzy Sovereignty

With the homeland as neither nation nor state, Puerto Ricans twist in the wind of political whimsy.

Theme: Human rights geography

Subject Article: "The problem with Puerto Rico's debt."

Other Links: 1. "Murder at Sea: Captured on Video, but Killers Go Free."
2. "American Experience: The Pill."
3. "The Insular Cases: Constitutional experts assess the status of territories acquired in the Spanish–American War."

Postscript: "Reconsidering the Insular Cases: The Past and Future of the American Empire."

Over a century has passed since the United States Supreme Court decided a series of cases, known as the “Insular Cases,” that limited the applicability of constitutional rights in Puerto Rico and other overseas territories and allowed the United States to hold them indefinitely as subordinated possessions without the promise of representation or statehood. Essays in this volume, which originated in a Harvard Law School conference, reconsider the Insular Cases. Leading legal authorities examine the history and legacy of the cases, which are tinged with outdated notions of race and empire, and explore possible solutions for the dilemmas they created. Reconsidering the Insular Cases is particularly timely in light of the latest referendum in Puerto Rico expressing widespread dissatisfaction with its current form of governance, and litigation by American Samoans challenging their unequal citizenship status. This book gives voice to a neglected aspect of U.S. history and constitutional law and provides a rich context for rethinking notions of sovereignty, citizenship, race, and place, as well as the roles of law and politics in shaping them.

Thinking about the Insular Cases in a generic sense, citizenship in any space at any scale is not a binary. In terms of territory or turf, citizenship is experience on a continuum. In a neighborhood, newcomers do not enjoy the full benefits of citizenship that the most tenured residents enjoy. Newcomers are expected to conform and labor to fit in, prove they belong. For example, Spike Lee's rant about the gentrification of Brooklyn:

Then comes the motherfuckin’ Christopher Columbus Syndrome. You can’t discover this! We been here. You just can’t come and bogart. There were brothers playing motherfuckin’ African drums in Mount Morris Park for 40 years and now they can’t do it anymore because the new inhabitants said the drums are loud. My father’s a great jazz musician. He bought a house in nineteen-motherfuckin’-sixty-eight, and the motherfuckin’ people moved in last year and called the cops on my father. He’s not — he doesn’t even play electric bass! It’s acoustic! We bought the motherfuckin’ house in nineteen-sixty-motherfuckin’-eight and now you call the cops? In 2013? Get the fuck outta here!

Nah. You can’t do that. You can’t just come in the neighborhood and start bogarting and say, like you’re motherfuckin’ Columbus and kill off the Native Americans. Or what they do in Brazil, what they did to the indigenous people. You have to come with respect. There’s a code. There’s people.

In this passage, Spike Lee is anti-newcomer. He isn't anti-gentrification. He invokes tenure as the measure for the right to define cultural space. Hey Spike Lee, get the fuck outta here with your xenophobic bullshit.

Atlanta's Talent Attraction Problem

From 2000–2013, Atlanta has fallen further behind other large metros in growing its population of college-educated young adults.

Theme: Higher education and economic development

Subject Article: "Best and Worst Cities for Educating Blacks: Instead of educating their own, some cities are importing college graduates."

Other Links: 1. "The Talent Migration Paradox."
2. "Debunking Texas Exceptionalism."
3. "Globalization and Atlanta's Gated Urban Core."
4. "Trolling for millennials with the Atlanta Streetcar."

Postscript: "We're now at a point in Georgia where you can't sustain those high attainment rates just by importing more people," says McGuire. "The challenges in Georgia, and in metro Atlanta for sure, have a lot more to do with doing a better job with the kids who are here than simply counting on lots of middle class families to move here and solve the demands of employers that way."

How Can Rust Belt Cities Attract More Immigrants?

Communities might roll out the red carpet for the foreign-born, but the more welcoming disposition doesn't do the trick.

Theme: Immigration and economic development

Subject Article: "Why newcomers are beginning to bypass Canada’s big cities."

Other Links: 1. "WE Global – Leading Rust Belt Immigrant Innovation."
2. "Population And Prosperity."
3. "Reading, Pa., Knew It Was Poor. Now It Knows Just How Poor."
4. "'The Handmaid's Tale' Is Economic Development."
5. "UNH study: Mexican migration plummets — as immigrant income rises."

Postscript: As the era of rural-to-urban international migration comes to an end, immigration to the United States will matter more in terms of quality than quantity. Immigrants won't boost the population. They will boost the regional economy.

Re-Location Is an Entrepreneurial Act

Correction: A reader of the post at Pacific Standard sent to me an email message pointing out an error I made. I reversed the characteristics of System 1 and System 2 thinking. System 1 is "fast" and System 2 is "slow".

Out of necessity, old habits die easily for migrants.

Theme: Innovation and migration

Subject Article: "Easing the Pain of Relocation."

Other Links: 1. "The Economic Case for Welcoming Immigrant Entrepreneurs."
2. "German Pork Butchers in Britain."
3. "Voting With Your Feet."
4. "The White Flight Myth."

Postscript: The psychology of migrants and the geography of migration are closely linked. While most migration appears to be economically rational, the precise location decisions are irrational. I live in Northern Virginia, a tight real estate market. I take advantage of the irrational location decision of well-educated mothers, who are willing to pay a large premium to reside in the neighborhoods associated with the "best" schools. I get more house in a better location thanks to the perception of school quality, which I know from graduate level data analysis courses in the social science to be off the mark in terms of outcomes. The movement between regions looks (and is) rational. But dig deeper into the destination region and stereotypes trump careful analysis.

Economic Growth in an Era of Demographic Decline

A shrinking population isn't the end of economic expansion.

Theme: Ironic economic indicators

Subject Article: "Obamacare’s Big Gamble on Hospital Productivity."

Other Links: 1. "Japan’s population slide set to accelerate."
2. "The Depopulation Bomb."
3. "Advanced industries drive down prices, making income more valuable."
4. "Era of Dying Places."

Postscript: Economist Tyler Cowen musing about China's demographic decline problem:

The Chinese employment rate has been increasing steadily, as has Chinese productivity.  In other words, improvements in both labor quantity and labor quality can help offset the aging problem.

Worth noting that Cowen isn't as optimistic about the same demographic pressures welling up in already wealthy countries. I disagree. But that's a larger debate for another time.

The Political Geography of Market Urbanism

The later the economic boom, the greater the municipal area.

Theme: Demography and economic development

Subject Article: "Pittsburgh’s population challenges stand out."

Other Links: 1. "Jurrassic Park Houston, defending Texas exceptionalism, passing Chicago, Market Urbanism, and more."
2. "How soon will Houston pass Chicago? The question isn't whether we'll be the nation's third-largest city. It's when."
3. "Debunking Texas Exceptionalism."

Postscript: Real estate market economist Jed Kolko responded to my criticism of conflating population change with domestic migration by pointing out that population change strongly correlated (positively) with domestic migration. There I sat with a straw man argument on my lap. Or so it seemed. Data in aggregate often obscure more than they illuminate. For example, one of the largest domestic migration flows in the entire country is from Texas to California. That's a gaping hole in the assertion that restrictive zoning on building repels migrants. Demographics aside, greenfield development is a different animal from infill. Greenfields are cheaper and politically less encumbered. Economically, the Sun Belt is playing catch up with the Rust Belt (much like developing countries are chasing developed countries). This game of convergence is far from fulfilled. In fact, in recent decades, the wealthiest Rust Belt states have started pulling away again from the Sun Belt. So Sun Belt cheerleaders continue to hang their hats on population growth without fulling understanding the demographics. The Sun Belt is not exceptional. Most of it remains well behind the rest of the country.

Debunking Texas Exceptionalism

Winning the demographic lottery is nothing to crow about.

Theme: Ironic demography

Subject Article: "How soon will Houston pass Chicago?"

Other Links: 1. "Low Taxes And Economic Opportunity In Texas Lead To Youth Population Boom."
2. "An Urban Agenda for the Right."
3. "Shrinking City Chicago."
4. "The Texas Migration Miracle."
5. "Gentrification."
6. "Keeping a Strong Texas Economy."

Postscript: Out of one side of my mouth, I lampoon Texas Exceptionalism. Out of the other, I celebrate Houston's demographic exceptionalism:

“After 1982, the Anglo population of Harris County stopped growing,” said Klineberg. “And all the growth, of the most rapidly growing city in America, has been from the influx of African Americans, Latinos and Asians. And this biracial southern city dominated by white men has become, in the last 30 years, the single most ethnically diverse major metropolitan area in the entire country.”

Houston is special because of immigration, not domestic migration. State and urban policies do little to influence international migration. The touting of pro-business legislation and overall deregulation as the reason for the population boom is at least 75% nonsense (i.e. the part of population growth attributed to natural increase and immigration). As for zoning, or lack thereof, it takes a backseat to greenfield sprawl in terms of keeping housing costs affordable. The Sun Belt is nothing more than Rust Belt sprawl.

The Talent Migration Paradox

Better to develop people and have them leave than to attract and retain college graduates.

Theme: Migration and economic development

Subject Article: "Fastest-Growing U.S. Cities Import Their College Graduates."

Other Links: 1. "Joe Cortright Talent Dividend Metrics."
2. "Beyond the Creative Class."
3. "Talent Attraction Expert Joe Cortright."

Postscript: For the migrants themselves, attracting talent is economic development. For the destination community, migration is not economic development. The tale of two cities in terms of inequality concerns townies and outsiders. Tenured residents are left behind or pushed out of place.

The Geography of Aspiration

Migration analysis places too much emphasis on push factors and not enough on the pull of opportunity.

Theme: Models of migration

Subject Article: "The low skilled are less mobile geographically because of the meagre value of work."

Other Links: 1. "Income per Natural: Measuring Development as if People Mattered More Than Places."
2. "A Sharp Drop in Interstate Migration? Not really: New data procedures led to misperception of dramatic decline in U.S. population mobility."
3. "This Government Program is Reducing American Mobility. Here’s Why That’s Hurting Our Economy."
4. "Benefits of Bowling Alone."
5. "Why are Higher Skilled Workers More Mobile Geographically? The Role of the Job Surplus."

Postscript: Fueled by macroeconomic cycles, who migrates and why change over time. Manufacturing jobs didn't offer a skill premium, begetting the Great Migration. Sometime after WWII, probably in the late 60s or early 70s (oil crisis of 1973 as a big break), the script flipped. The better educated had more reason to move. Couple that with a low-skilled international migration that mirrored the Great Migration and kept employers happy with a cheap supply of labor. Fast forward to today, companies in the market for low-skill or middle-skill workers will have a tough time filling positions.

Social Innovation and Informal Housing Supply

Changing zoning regulations is an inefficient way to address the housing affordability problem.

Theme: Economic geography of housing affordability

Subject Article: "Silicon Valley’s Extremely Expensive Bunk Beds."

Postscript: High rents be damned, young people will figure out a way to live in the city. About 20-years ago, I did the DC internship thing. Most of the interns I knew were affiliated with a college program, which took care of the usual room and board concerns. I had no such luxury. Since Amnesty International provided a commuting stipend, I lived way out in the boondocks with the mother of my girlfriend. Rent was free. My internship supported the 4-hour round trip journey to work. The situation was less than ideal. But that's what I could afford. The urban advantage is an irrational choice.

The Futility of Trying to Attract (and Retain) College Graduates

The young and well educated are moving to the largest cities. They don't care about a lower cost of living or cool amenities.

Theme: Migration research

Subject Article: "Why the 'Cool Factor' Won’t Lure College Grads to Your City: Since 2000, grads looking for big cities with lots of jobs."

Other Links: 1. "And the Talent Dividend Prize Winner is ..."
2. "Do Jobs Follow People or Do People Follow Jobs?"
3. "Do Colleges and Universities Increase Their Region's Human Capital?"
4. "The Rise of the Creative Class: Why cities without gays and rock bands are losing the economic development race."
5. "Smart cities and attracting knowledge workers: Which cities attract highly-educated workers in the 21st century?"

Postscript: Over the last few months, I've had the occasion to interact with real estate developers. I was surprised to learn how little they knew about migration. The same goes for real estate market analysts. Which is to say, one can make a lot of money in real estate without understanding migration.

Are High Housing Costs Forcing Talent to Flee Silicon Valley?

The pull of opportunity, not the push of expensive real estate, drives migration from California.

Theme: Housing prices and migration

Subject Article: "Soaring housing costs forces talent to flee Silicon Valley."

Other Links: 1. "Find a New City."
2. "If the 1% stifles New York's creative talent, I'm out of here."
3. "The Ruse of the Creative Class."
4. "Not So Much 'New York Poor' as 'Pittsburgh Rich'."
5. "Innovation Geography: The Beginning of the End for Silicon Valley."
6. "The Lock-in Effect of California's Proposition 13."
7. "Domestic migration: Dreams of Californication."
8. "Proposition 13 Then, Now and Forever."

Postscript: Given all the bloviating about how market urbanism can fix California's housing affordability woes, this ditty from the Cato Institute now looks amusingly ironic:

Political analysts often argue about when the modern-day conservative movement in America began. Some say that it began with Barry Goldwater’s campaign in 1964. Others say it began with the election of Ronald Reagan in 1980. I believe that the conservative, anti-big-government tide in America began 20 years ago with the passage of taxpayer advocate Howard Jarvis’s Proposition 13 in California.

Proposition 13 was a political earthquake whose jolt was felt not just in Sacramento but all across the nation, including Washington, D.C. Jarvis’s initiative to cut California’s notoriously high property taxes by 30 percent and then cap the rate of increase in the future was the prelude to the Reagan income tax cuts in 1981. It also incited a nationwide tax revolt at the state and local levels. Within five years of Proposition 13’s passage, nearly half the states strapped a similar straitjacket on politicians’ tax-raising capabilities. Almost all of those tax limitation measures remain the law of the land today.

Jarvis's tax revolt horribly distorts the real estate market, pushing up prices in California and in states receiving the equity rich migrants looking to cash in on the subsidy that Cato celebrates. As per usual, political ideologies make for awful policy.

The Depopulation Bomb

Almost 50 years ago Dr. Paul Ehrlich published a book called The Population Bomb. Today, demographic hysteria concerns too few people.

Theme: Ironic demographics

Subject Article: "Are People Really Leaving Illinois In Droves?"

Other Links: 1. "The Rachel Carson Homestead."
2. "The Unrealized Horrors of Population Explosion."
3. "Redemptive existentialism and Berkeleian metaphysics: a synthesis in Beckett’s plays."
4. "Where does Chicken Little invest?"

Postscript: The population bomb never went off. The population bomb never existed. The same is true about the depopulation bomb. Population change is neither a metric of success, nor is it a useful policy goal.

The New Geography of Jobs: Talent Production Versus Knowledge Production

Pittsburgh is the best place in the United States to flip property. What explains the real estate boom?

Theme: Geography of innovation

Subject Article: "Carnegie Mellon Reels After Uber Lures Away Researchers."

Other Links: 1. "Pittsburgh becoming 'flip' city as real estate market heats up."
2. "From Metals to Minds: Economic Restructuring in the Rust Belt."
3. "The New Geography of Innovation."
4. "Do Jobs Follow People or Do People Follow Jobs?"
5. "Rust Belt Chic: Harvey Pekar."

Postscript: If you get a chance, do read The WSJ article about Uber poaching talent from CMU. I think a new economic geography is developing before our eyes. Explaining the real estate boom:

Pittsburgh missed the national housing boom of the early to mid-2000s, being a region where property values in many communities have either remained flat or grew at a snail’s pace. Historically, residents here also were less inclined to relocate from one house to another.

But in recent years, many neighborhoods throughout the city such as Lawrenceville have seen housing values appreciate by double digits as demand has been driven up by workers in medical, technology and the oil and gas industries, and as investors have swooped in to take advantage of the low prices and the high demand.

A lot of gentrification is amenity driven, and thus ephemeral. The gentrification of Pittsburgh neighborhoods is driven primarily by economic restructuring. Wages from global jobs are pouring into the city.

The New Geography of Innovation

Jobs don't follow talent. Jobs follow knowledge production.

Theme: Economic restructuring

Subject Article: "Uber gutted Carnegie Mellon’s top robotics lab to build self-driving cars: A 'partnership' based on poaching."

Other Links: 1. "Pittsburgh And Migration Mesofacts."
2. "LycosBurgh."
3. "The Power of Eds and Meds: Urban Universities Investing in Neighborhood Revitalizationand Innovation Districts."
4. "The Economic Geography of Tech Talent."
5. "It’s Not the People You Know. It’s Where You Are."
6. "From Metal to Minds: Economic Restructuring in the Rust Belt."
7. "Knowledge Spillovers from Research Universities: Evidence from Endowment Value Shocks."

Postscript: For the blog post title, I'm openly ripping off Enrico Moretti's book, "The New Geography of Jobs." The economic geography Moretti describes is in decline. More technically, it is converging, "Soaring housing costs forces talent to flee Silicon Valley." The jobs that once clustered in just a few winning places are diffusing around the country. The same industry cycle that took down manufacturing:

But what about the original question—whether it's possible to build a technology platform company outside Silicon Valley. A platform company builds technology used by other technology companies, from the iPhone that runs other applications to the Facebook login we use to access other websites, compounding each employee's leverage. This is why Facebook's market value exceeds $20 million per employee.

These companies don't have to worry about expenses much. As my first mentor in Silicon Valley, Kirill Sheynkman, once explained to me at a French restaurant, the point in an innovation economy isn't to spend less, it's to make more. And for a platform company, the value of being close to the technology companies that build on your platform is priceless.

But as our industry matures, the pressure will be on profits, not just revenues. And few high-tech companies get as much leverage as Facebook from each employee. Even a platform company like Twitter is worth about four times less per employee than Facebook. With less equity to burn, Twitter has had to be the pacesetter in raising San Francisco engineering salaries, which is why its stock is now under so much earnings pressure. Only the techiest of tech companies—and only their tech people—don't feel the pinch.

Not only is it possible to build a technology platform company outside of Silicon Valley; the financial bottom line demands it. So eroded Detroit's competitive advantage in the automobile industry. So eroded Pittsburgh's competitive advantage in the steel industry. What's next? Read "From Metal to Minds: Economic Restructuring in the Rust Belt."

The Economic Geography of Tech Talent

The tech talent apple doesn't fall too far from the university tree.

Theme: Emerging economic geographies

Subject Article: "The truth about life in 2015 at Stanford, where 21-year-olds are offered hundreds of thousands of dollars right out of school."

Other Links: 1. "Ernest George Ravenstein: The Laws of Migration, 1885."
2. "Economic Geography Of Talent Production."
3. "Stanford University Is Dying."
4. "From Metal to Minds: Economic Restructuring in the Rust Belt."
5. "Silicon Valley is already dead."
6. "Comparative Localization of Academic and Industrial Spillovers."

Postscript: Private firms don't cluster near each other to reap some sort of density dividend. They aim to be as close as possible to a research university seeking proximity spillovers from the knowledge production for public good. Density doesn't drive innovation. It is an effect of innovation.

Technological Innovation Begets Migration

In a virtuous circle, migration and innovation make the world go round.

Theme: Innovation geography

Subject Article: "In the age of disruptive innovation, adaptability is what matters most."

Other Links: 1. "Space and the city: Poor land use in the world’s greatest cities carries a huge cost."

Postscript: This post was inspired by the latest paper from Chang-Tai Hsieh and Enrico Moretti, "Why Do Cities Matter? Local Growth and Aggregate Growth." Artificial housing supply constraints are deemed to be a drag on economic output. That assumes lower housing prices would allow more people to live in the most productive places. That is, lower housing prices would beget higher population. Which raises the question, how much do housing prices affect inter-regional migration and population change?

Stanford University Is Dying

You go where you know. You went to the wrong college and spent too much money.

Theme: Innovation geography

Subject Article: "How to Survive the College Admissions Madness."

Other Links: 1. "Silicon Valley Is Already Dead."
2. "From Metal to Minds: Economic Restructuring in the Rust Belt."

Postscript: The a-ha moment came while reading about how the regional economy in Waterloo, Ontario thrived despite the demise of Blackberry. The pursuit of tech transfer is the holy grail of economic development. Pittsburgh desperately tried (still tries) to hit on its own Blackberry. This quest spurred world class knowledge production at Carnegie Mellon University. That asset, as it turns out, drives economic restructuring.

The Third Globalization: Human Capital and Demographic Decline

Half of the world lives in a country where the number of births fails to replace those who die.

Theme: Ironic demographics and globalization

Subject Article: "Investing in People as an Economic Growth Strategy."

Other Links: 1. "The Rise (and Likely Fall) of the Talent Economy."
2. "Extensive and Intensive Globalizations: Explicating the Low Connectivity Puzzle of US Cities Using a City-Dyad Analysis."
3. "Boston Versus Silicon Valley: Advantage Beantown."
4. "From Metal to Minds: Economic Restructuring in the Rust Belt."
5. "Peak Talent."

Postscript: "Rich countries' populations are beginning to shrink. That's not necessarily bad news":

Demographic decline worries people because it is believed to go hand in hand with economic decline. At the extremes it may well be the result of economic factors: pessimism may depress the birth rate and push up rates of suicide and alcoholism. But, in the main, demographic decline is the consequence of the low fertility that generally goes with growing prosperity. In Japan, for instance, birth rates fell below the replacement rate of 2.1 children per woman in the mid-1970s and have been particularly low in the past 15 years.

As economic prosperity diffuses, so will demographic decline. How we manage that demographic decline will define economic geography.