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Tech Successes Are Great, But Don't Solve the Economic Crisis

David Callahan

One result of the Facebook IPO is that it will spawn a bunch of new angel investors, as shareholders use some of their new wealth to invest in start-ups. That's a good thing and shows how wealth gets recycled – how rich people don’t use their money just to consume, but also to invest. In fact, one reason that Facebook exists is that PayPal co-founders Peter Thiel and Reid Hoffman used some of their winnings from that earlier start-up to invest in Mark Zuckerberg's fledgling venture.

I understand this virtuous cycle, which Silicon Valley especially exemplifies, as tightly networked entrepreneurs invest in each other, with the winners pulling up the aspirants. But here’s the thing: Even as we appreciate the cycle, let’s not confuse what’s happening in Silicon Valley with a solution to America’s jobs crisis.

On Friday, I made this point on CNBC’s “Closing Bell,” hosted by Maria Bartiromo. I noted that Facebook has just 3,200 employees with a market valuation of $100 billion and its success underscores the growing disconnect between corporate wealth and job creation. Big paydays for founders like Mark Zuckerberg have less and less to do with the creation of middle class jobs for everyone else, in contrast to earlier phases of American capitalism when rising yachts meant that other boats were rising. A simple enough point, I thought.

Also on the program was Andrew Rachleff, a former venture capitalist and professor at Stanford Business School. Rachleff is an interesting guy and he was making a good point that Facebook fortunes would help bankroll new startups. Rachleff has seen how this works first hand from his years in Silicon Valley.

I had no beef with Rachleff. But what did bother me is how Bartiromo. just couldn’t acknowledge my point that the wealth of Facebook was being shared very narrowly and that the new startups that Facebook richies underwrite as angels might not create many new jobs either (Instagream had just 17 employees when it was bought for $1 billion). Just maybe, I suggested, this indicated a problem with the U.S. economy. Bartiromo chided me for not celebrating a great success story of innovation.

The problem here is that she and I were having two different conversations. I totally agree that Facebook is a great company and that we should be happy about tech successes like this. I also know that there’s an interesting debate about where the new era of tech innovation is leading. I’m as fascinated as anyone by what is happening, and I’m a big admirer of visionary entrepreneurs like Zuckerberg who operate on the cutting edge. I want the Zuckerbergs of America to get rich from their ideas (although I do think it’s morally disturbing that Zuckerberg should be worth more than the bottom fifth of U.S. households and that his company benefits from big tax loopholes.)

But whether the tech boom is going to alleviate the misery of the bottom half of America is an altogether different matter. Clearly this is not happening, as I wrote on Friday, and somebody needs to say that. Facebook is not today’s version of GM. What’s good for Facebook is not necessarily good for America. Saying this doesn’t diminish the wonder of Facebook or call into question the rewards bestowed on its founders. It simply adds context. After all, last I checked, this country was still in the middle of the worst period of economic hardship since the Great Depression.