AN ECONOMY BUILT ON SAND AND BLOOD: the Mixed Blessing of Silicon Valley

Greg Daneke, Emeritus Prof.
8 min readNov 9, 2020

I am worried that our technology is helping to bring the long, postwar consensus against fascism to an end. ____ David Bodanis

I first began studying the Silicon Valley as a policy phenomenon back in the early 1980s, when state and local governments across the globe were trying to replicate this engine of economic development. Remember, when everyone was touting their own Silicon Beach, Forest, Mountain, Desert, and Dog-Patch? At Trinity University in Dublin, with buildings commissioned by Elizabeth the 1st and holding the Book of Kells (the magnificent 8th century illuminated bible), they had a tiny engineering cottage tucked away in what they were calling “Silicon Alley”. Economic planners were scrambling to replace “smoke stack chasing” with what I called “short stack chasing” (as in circuit wafers). Unfortunately, not even Route 128 in Boston, nor the Research Triangle in North Carolina could match the secret sauce of the region south of San Francisco. My early studies concluded that even if one could assemble all the ingredients (defense spending, world class universities, research parks, ample venture capital pools, excess engineers, larger than life leaders, and even loads of high functioning autism sufferers) they could NOT get the entrepreneurial mix correct. Nor could they achieve the sequence of complex feedback amplifications required to offset the notorious “first mover advantage”.

Even after a visiting professorship of engineering at Stanford in the mid-80s, the precise configuration of nonlinear dynamics eluded me. Only in recent years have I come to more fully appreciate that Silicon Valley is a vast cultural ethos, aided and abetted by larger forces in an increasingly perverse political economy. Moreover, as the myth and magic of the silicon economy begin to fade, the more malignant of the deep-seated ideological elements are percolating up to the surface. Since both political parties have contributed mightily to the current neofeudal edifice, it matters little that Silicon Valley is misperceived as a democratic stronghold. Besides the valley has deep and enduring roots in republican circles. Plus. given the lack of an actual ideological difference between to two parties, attempting to pigeonhole the broader origins and implications within the current political situation is a fool’s errand.

A Brief History of Silicon Valley

The history of the valley is tightly interwoven with Stanford University. Unlike its fellow prestigious centers of higher learning, it began with an engineering school and to this day lacks a number of the departments we normally associate with universality. Amasa Leland Stanford (Leland Sr.) was one of the more infamous of American’s Robber Barons (railroad magnate and corrupt politician). The students of Stanford once voted to change their mascot to the “Robber Barons”, but wealthy donors quickly over-road them. The university was a memorial to his son Leland Jr., and it began after his death as well. It was actually accomplished by his widow (Jane) a wheeler-dealer in her own right. She traded upon connections in DC to get Leland’s government debts written off, making the university possible. Plus, Stanford came into its own via significant defense expenditures.

During WWII nearby Moffitt Field was center of anti-submarine research, and its huge blimp hangars were still visible from the campus in the mid-1980s. By then Moffitt had morphed into a Branch of the Ames Energy Labs and military applications had ballooned in all directions, including DARPA (the Defense Advanced Research Projects Agency). DARPA funded the development of the internet, and firms like Google that started in a left-over Quonset hut, behind the Terman Engineering Center in the 1990s.

To fully appreciate the uniqueness of the valley, I need to back-up a bit to mention the namesake of the Stanford engineering school. Following WWII, Palo Alto’s prodigal son, professor, dean, and provost Frederick Terman, returned from his government service in DC (radar counter-measures) and brought with him a cadre of leading electronics researchers and connections to government funding. He was destined to become one of the most indomitable figures in the history of information technology. He personally inspired many a student to stay on in the valley and start their own firms. Moreover, he helped to encourage established firms to locate a “skunk works” in the one of the very first (1950) research parks and husbanded a “spinoff” culture.

One of the most famous episodes was known as “the traitorous eight”. Semi-conductor pioneer, William Shockley (who himself filched from Bell Labs), was a brilliant scientist, but terrible manager. His best 8 people left to help found a number of legendary microelectronics firms (from Fairchild to Intel and Alemco to Teledyne), with one, Eugene Kleiner, becoming a major venture capitalist, funding several hugely successful start-ups. Of course, it did not hurt that at the time that Cold War weapons and the demands of the Space Program required more and difference microprocessors than anyone one firm could provide. Plus, the “spin-offs” in specialty chips became the gift that kept on giving as the Fairchilds became the fairgrandchildren (i.e. AMD and Nvidia), as our phones, personal assistants, watches, and cars became computers.

The arrival of the PC (personal computer) revolution and the ensuing software wars began to change the character the valley. Bill Gates the raider from the north (Seattle) was much more a pirate than Steve Jobs, who flew the Jolly-Roger over the Apple headquarters. Microsoft not only sold IBM an operating system that they did not originally own, but effectively sandbagged its second iteration OS2 while working on their own Windows monopoly platform. Convicted twice of “acting in restraint of trade” they received small slaps on the wrist, and were never broken-up. For software developers, it was Gate’s way or the highway, and many a cool program never saw the light of day. By the 1980s we were even beginning to lose the chip wars to foreign competitors (mostly Japanese), and even the mighty Intel made the momentous decision to abandon RAM (random access memory) chips and join the Microsoft Axis known as “Wintel”. As in the past, the government stepped in to bail out the chip manufacturers with lucrative defense contracts and the establishment of the Strategic Computer Initiative and MCC (the Microelectronic and Computing Consortium).

The brief doldrums ended with a curious new ethos for the valley. On the one hand monopoly power was extolled and government support was expected on the other. Government funding paved and lighted the information super-highway (Internet) that the current generation of upstart start-ups were encouraged to monopolize as the “Big Data” toll-road. Not to mention the girding up the “Surveillance State”.

Death Valley Days

All the while, the mythology of Silicon Valley as paragon of social responsibility, creativity, and free enterprise continued to grow as the hidden reality undermined these fairy tales. The valley was national symbol of liberalism and rugged individualism, when it was actually rigged individualism and growing illiberalism. And, once Wall Street realized the fix was in, it took an unrelenting interest in Silicon Valley. The raucous “disruptors” who took risks, moved fast, and broke things, soon received a lesson in late stage, hyper-financialized, capitalism. It was pump an dump, and in the worse case scenario you get bailout.

At the same time that Silicon Valley was experiencing its own identity crisis as larger forces were exerting themselves in the macroeconomy. I will explain these forces in a bit more detail below, for now suffice to say that the “money for nothing” mentality of financial capitalism was gilding the goose while painting eggs, further discrediting the entrepreneurial economy.

Dramatic changes in tax (e.g. capital gains) and accounting rules (mark-to-magic instead of mark-to-market) not to mention labor relations (non-compete contracts and H1-B visas) fueled extra “irrational exuberance”. Even after the bursting of the Dot-com Bubble, financial forces sped the reassembly from the flotsam and jetsam. Many conservative mega-investors (with their risks underwritten by the US tax-payers) decided to remodel themselves after the venture and/or vulture capitalists.

All too soon financial manipulation was mistaken for innovation, and minor technological advances given astronomical valuations. P/E (price to earnings) ratios have gone off the scale. How else could a firm like Tesla be valued higher than all of the US car manufacturers together, and not yet turned a profit. The tern “unicorn” (a mythical creature who overestimated potential justifies at least a billion-dollar valuation) was coined for this purpose. However, like Voldemort many a zombie firm has been sustained by unicorn blood. Beyond, the out & out frauds like Theranos, WeWork, and FTX, clever finance and banking can keep many a corporate corpse on display awaiting a “greater fool”, as well as gutting many a successful enterprise and/or force misbegotten mergers.

As alluded to above, the valley benefited from much larger forces within the evolution of the US as well as global economy. Yet, it is essential to point out that it was both a cause and effect in this regard. In fact, in some respects it was a prime mover. Following WWII, a small cult of economists, displaced royals, and wealthy elites set out to completely reverse the New Deal political economy that had emerged from the Great Depression and had provided an unprecedented period of shared prosperity for several decades. They are now known by the confusing label of “neoliberalism” (more like neofeudalism), and their grip upon our society is relatively inescapable.

Their odd admixture of anarcho-capitalism, militarism, monetarism, and authoritarianism overtook the entire economics profession. Moreover, it formed an unholy political alliance with various neo-reactionary forces and exploited deep-seeded cultural antagonisms (based in race, religion, and anti-science sentiments). Gradually it gained a strong foothold in the halls of power (including in both US parties and the courts). Stanford’s Hoover Institution has been a long-standing bastion of this ideological movement, yet only recently have the faculty senate suggested that they might like to evict them, despite being stuck with its landmark phallic symbol.

The mythology of the valley served as a rallying point for a hyper-financialized and de-industrialized economy. We “don’t need to no stinking” factories and plants, we’ve got “all the smartest kids in the room”. Moreover, the so-called “information economy” will make everybody rich if we just trust the money managers. Unfortunately, only a handful of sociopathic geeks and the financial backers got extremely rich, dramatically increasing their societal power. Many made their fortunes the old-fashioned way: suckling at the public teat, securing monstrous monopolies, and stealing innovations from would-be competitors. Despite having accepted so much of the US public largesse, they employ few US citizens and pay only a pittance in taxes. For example, most of Apple’s phones are built in Chinese sweatshops, and much of its corporate taxes are washed away in off shore scams like the “double Dutch/Irish sandwich”.

In the recent era when BIG DATA became its own asset class, the monopoly search, social media, and retail chains (e.g. Amazon, Google, and Facebook) achieved and monumental windfall. Now the huge platforms commodify and monetize a faux version of our very essence, fueled by a burgeoning AI (artificial intelligence) industry. AI already corrals us into bogus cohorts and redlines our lives in a thousand subtle ways. Ultimately AI opens a Pandora’s box of human subjugation (note

At a certain point in this monopolistic malaise the valley lost its magical mojo, and ancient ideological notions were resurrected to buttress the claims of our information overlords. These unfortunate ideas are not only draw upon the hidden contradictions of our economics profession; they invoke deep seeded reactionary apriorists such as Machiavelli, Nietzsche and Evola as well as modern day crackpots such as Ayn Rand, Nick Land, and B.F. Skinner. Collectively they are harbingers of the so-called “Dark Enlightenment”. These notions to not only self-bestow a regal mantle upon the new masterbators of the universe, they contend that human “freedom and dignity” are dysfunctional myths. Taken to their logical extreme these pernicious pronouncements portend a new feudal order, with the vast majority of the population as largely irrelevant, and with few of the rights afforded to Medieval serfs.



Greg Daneke, Emeritus Prof.

Top Economics Writer. Gov. service, corp consulting, & faculty posts (e.g., Mich., Stanford, British Columbia). Piles of scholarly pubs & accasional diatribes.