Will Competition Kill Us All?

No doubt many of us saw today’s CNNMoney article about the priciest places to be upwardly mobile.

No surprise – New York and San Francisco topped the list.  According to the study, a couple needs to earn $167K per year to live comfortably in Manhattan and $145K to live in San Francisco.  On the other hand, couples willing to live in Oklahoma, Tennessee, Texas, or pretty much anywhere people believe George W. Bush is a good president can be happy on just $70K per year.

What fascinates me is not the discrepancy between costs of living, but the economic and psychological reasons for them, as well as the disturbing implications.

The statistics reaffirm the brain drain that has been going on for years.  The best and brightest from the middle of the country all flock to the coasts to pursue their dreams.  If someone’s born on a coast, he might move across the country, but rarely will he move into the country.  People want to live in large metropolitan areas where there are both interesting jobs and interesting things to do when not working.

The brain drain has resulted in not just in a depletion of intellect from the red states – but it’s caused a surplus of talent in major cities.  Personally, I went from being a rockstar in Solon, Ohio to being in the glee club at Cornell and in Silicon Valley (I’m using the rockstar and glee club metaphorically).    Even if we’re now seeing a bit of a labor shortage, from my perspective, there is still an extraordinary amount of talent concentrated in an extremely small area.

So what has this concentration of talent caused?

For one thing, it’s certainly caused the discrepancies in incomes between the areas.  Talented people deserve to earn more money, after all.  However, because we all earn high salaries, we bid up fixed resources to exorbitant prices.  Anything for which we have inelastic demand naturally costs more – housing, food, transportation, insurance, and so on.  We forgive the high cost of living because of our high salaries.

But the story doesn’t end here.  Even though we’re generally happy to be making and spending a lot of money, we are still ambitious.  We focus on our careers, and when economic conditions permit, we innovate and form new companies.  A few of the early startups find success, and copycat startups emerge.  Competition squeezes a business’ margins just like competition squeezes an individual’s.

Being a marketer, I like to focus on profit margins, and I’m wondering if our ambition and the resulting competition are really good for us.  You might recall the scene in A Beautiful Mind when John Nash realizes the existence of what is now known as the Nash equilibrium – we’re all worse off if we chase the blonde.  And maybe we’re worse off because of our ambition and the businesses we create.

Will competition kill us all?

Comments

[Cheryl]

You need to read "The Creative Class" by Richard Florida; I haven't read it but Marc has, and it has the same ideas. Interesting that Framingham-Natick made the list slightly ahead of general "Boston" (I assume Brookline/Newton is included in Boston, but maybe not) - I'm surprised that it was broken down to that extent too.