TLDR: It’s the land, stupid. Just as it has been since advent of agriculture: the landed class holds power over all productivity, and as productivity rises the landed will reap more of its reward, ensuring desolate poverty immediately adjacent to extreme productivity.
Productivity improvements (from tech, public investment, private investment, and sheer population scale) are not evenly distributed, but they raise the value of nearby land which everyone must stomach the costs of, from individual laborers and teachers to grocery stores and coffee shops.
Cost of rent rising with productivity obviously ensures impoverishment of people who cannot achieve the higher productivity, and the diminishment of living standards even for people who can (see: Palo Alto residents qualifying for public housing assistance with $200k+ household incomes).
The people who primarily win as productivity rises is not the people producing but those who own the land on which producers live and work. It’s a story as old as time. Land is power (see: feudalism; the Queen of England whose wealth and status was from dynastic landlording).
It’s not even a new problem in SF. Post gold rush people were asking the same questions, one of whom was Henry George who wrote a great book on this land-oriented (and sector-agnostic) view.
Of course California, being already controlled by the landed class, has gone off the rails in the opposite direction with Prop 13 ensuring that landlords have pretty much perpetual rent seeking authority over the entire state’s productive power, whether it be generated by nature, technology, or institutions. Note the conspicuous absence of the productive power of people who simply sit on a piece of land, and their conspicuous accrual of wealth and power.
This dynamic causes poverty to grow with progress, only to be mitigated by enormous public expenditures to hide the effects of it.
All of which require land. You are seeing the exact same effects in places that are highly desirable for remote work. People bring their NYC or SF incomes to places like Austin, Raleigh, Bozeman, etc. and all the same stuff albeit different intensities.
Land is finite and it’s an absolute necessity for all productivity.
An LCOL area that successfully attracts people doing high wage work (remote or not) actually becomes a high cost of living area. That’s the point.
If you are a landlord in a city where median income is $50k/yr and you find out a whole lot of people earning $400k/yr are moving there, what do you do? Unless you’re a complete dummy or want to run a charity for $400k+ earners, you raise rent.
There’s not actually that much of a constituency for being on top of the world economically and then living in the exurbs of a third string metro. Some, sure. But by and large people are going to put the kind of incomes that are possible in tech towards living in nice places. And that’s gonna put upward pressure on land values there. Even more so considering how few nice places there are in America.
This dynamic occurs to the extent that there is a widespread monied middle-class that is competing for housing which doesn't exist. Each person needs a home; there are more people than homes; therefore the people bid up the prices of homes to consume all of their available income.
It didn't exist when the monied class was limited to entrepreneurs, VCs, and other capitalists. Back around 2005 or even 2010 when average engineer salaries were $150K instead of $500K and "Silicon Valley wealthy" meant Jobs/Page/Brin/Zuckerburg/etc. and the founders whose companies they bought, average home prices were about 1/3 of what they were now. In fact, the monied class often became the landed class as they traded tech wealth for land. I know one old-money brand-name tech family with land holdings in the Bay Area that are roughly twice the size of San Francisco. There could be 2 million people living on that land; instead there are about 12, because the family in question would rather keep it as conservation ranchland than developed urban area.
It's the same story of commoditization & inflation that economists have known for centuries. When only a few people have money, they have the power. When everybody has money, nobody has money, and the money all goes to people who own the scarce goods they need.
This. Mr Thiel's highly hypocritical and incoherent rant on "dysfunctional societies" and "corrupt governments" is nothing more admitting that the likes of him are refusing to contribute at all back to society, let alone proportionally to what they personally benefited from it, and are thus single-handedly actively causing its deterioration.
Mr Thiel, pay your taxes, and in the process put your money where your mouth is and start contributing back to fixing problems. You're supposed to be bootstrappy and a problem-solver, aren't you? Why did any of your industrious spirit vanished once it's your time to pay back to society what you owe it? Is it easy to build a huge mansion in a gated community but too hard to work with local and state governments to chip in a fraction of that cost to invest in urban renewal programs, social programs, or even social housing?
No, the problem is the engineers, not Thiel. European countries also have billionaires. But the billionaires don’t pay for the social housing, etc. Sweden doesn’t have a wealth tax, it has low corporate taxes, and low capital gains taxes too. Sweden has all the robust welfare system because the top tax rate starts at around $75,000/year.
The only reason California doesn’t look like Sweden is because your average California liberal is a hypocrite and won’t put their money where their mouth is.
I recommend visiting Sweden. The welfare system is falling apart, the population is increasingly hostile towards immigration, the average salary is rather low, while prices are high. It is not the best place for the poor, middle class, or the rich.
Meanwhile, it’s important to remind you that engineers are rarely involved with policymaking. They are not the problem. Heck, there isn’t even an union or guild for engineers.
I’m using engineers as a California-specific example of upper middle class people (given the reference to Peter Thiel below). Sweden, and every other European country, pays for its welfare system by taxing middle class people. That makes sense because middle class people have most of the money. Facebook’s payroll is much bigger than the investment Zuckerberg makes every year. They don’t sit around complaining that we can’t have social services because the billionaires won’t pay for it.
And now those middle class people have the same problems unless they inherited wealth, while expected to fund both the young, the old and the weak.
Take GP's advice and go talk with some locals. Various countries with high taxes are watching their services fall apart. Taxing the middle class alone isn't the silver bullet you portay it as, and is only a small part of the entire system.
Taxing the middle class is a necessary condition of having a welfare state. The most remarkable difference between the American tax structure and those of European social democracies is that we have extremely low taxes on the middle and upper middle class. In the U.S. we have a lot of people complaining why we don't tax Peter Thiel to pay for universal healthcare, but that's not the reason we don't have universal healthcare.
In the face of an aging population and diminishing workforce, taxing the middle class may not be enough. But I am talking about an antecedent question.
It most probably is. But OP’s point was that if engineers paid more taxes, all problems would be solved. And it’s not true - migrants also pay high taxes in Sweden.
My point here is that there isn’t a single solution for very complex systemic issues. Pinning the blame on middle classes is wrong and unproductive.
> The only reason California doesn’t look like Sweden is because your average California liberal is a hypocrite and won’t put their money where their mouth is.
Or maybe California cannot restrict immigration from other parts of the US, containing 290M+ people. Nor can it stop the federal US government from taking a good portion of its wealth and giving to other parts of the US.
And Sweden can stop immigration anytime it wants.
Seem like pretty big differences in parameters requiring different approaches to government and expectations of outcomes.
You’re telling me an adult in any country on earth can move to Sweden (how hard is it to move to Sweden), stay there for 4 years, pass a test and become a citizen?
Well, I understand your skepticism, which is always healthy. I recommend a good Google/Reddit search to find all of the nuances of the subject, but overall, yes, if you are legally working in Sweden for 4 years, you can become a citizen.
It’s much simpler for 290M+ people in the US to move to California. As well as much more difficult for California to stop the US from redistributing its wealth to other areas of the US.
So not really comparable to an independent nation of Sweden.
> You're supposed to be bootstrappy and a problem-solver, aren't you? Why did any of your industrious spirit vanished once it's your time to pay back to society what you owe it?
It's interesting that Peter Thiel's preferred mythology (bootstrappy problem-solver with an industrious spirit) has become canon even among skeptics.
> It's interesting that Peter Thiel's preferred mythology (bootstrappy problem-solver with an industrious spirit) has become canon even among skeptics.
Peter Thiel's mythology revolves around the idea that all of society's problema are solved by industrious individuals, much like himself, instead of the state.
And now we see the likes of a Peter Thiel not only robbing the state of the means to actually do the job he's whining they should do, but also doing absolutely zero to do anything about the problem.
It's not a mythology. It's entitlement, hypocrisy, cinicism, and rationalized greed.
Mythology, but in the Greek sense, where all the (gods|rich people) are actually terrible people, but you have to play along or your life will get worse, and we spin all failures to do so as personal failings.
Dude he helps kids who are getting lynched in college drop out! He has bad investments in idealistic companies! What more do you want! He had a bunch of home runs and got rich, he actually talks, like here, dude!
California suffers from over population. There really isn’t enough resources to support people as well as industry(including tech) in California.
Resource optimization can only occur with automation. For a tech paradise, we are woefully outdated compared to other global tech centers. We don’t even compare favourably with places like Asia.
The housing situation in CA is because we have been brainwashed into home ownership. It’s not for everyone. Only a few can afford it truly. Renting is the best economic choice. Unaffordable housing in California is due to the speculative frenzy for home ownership and also partly due to foreign ownership of speculative assets.
There will always be the landed gentry and they are necessary for the stability of an economy because they already own the land.
When people ‘own’ their little homes splintered only to give them the satisfaction of ‘home ownership’, it is a lie. What happens is instead of land owning citizens collecting rent, banks collect interest on mortgage.
It is a macro economic move. It means that the state is leaking $$$ and there is Big Govt that needs revenue for its bloated departments. It also means that interest rates are being manipulated. It has nothing to do with home ownership. I would rather pay rent than pay interest.
My controversial take is that I prefer the landed gentry who are rent seekers than be sucked into a fake ownership agenda that is really the govt with the central banks milking interest and more taxes. It’s usury. It only benefits banks and governments. Not tax paying citizens.
If anything, California suffers from the wokeness curse. It’s debilitating when rational thought is sacrificed at the altar of political correctness.
I am on the side of giving the govt as little powers as possible to operate. Their essential functions should law and order, infrastructure maintenance and social services to bring the marginals up to the center.
If they have to be involved in housing, it should be like in Singapore. The govt builds high income, medium income, low income homes in high density townships and offer them at 99 year leases. This would guarantee homes without participating in the speculative home market. But this would never happen in America because the real problem is interest rate fixing and a tap called property taxes that can never be turned off. They are playing us and turning us against each other.
I haven't read the article, but as a general rule of thumb, if Peter Thiel believes something about politics or economics to be true, the opposite is probably so.
Because it's what I believe, for reasons. If you want an explanation of why that's what I believe, you are welcome to make up any in your own head that satisfy you.
Hey I've got an idea, let's artificially restrict the flow of USD currency behind oligopolists, then double-dip and own the company that makes it slightly easier to transact. Can I have a billion dollars now for inventing paypal cause I know HTML? I'm Peter Eat-your-meal, you should listen to what I have to say because I'm the smartest conman in the room.
