Economists have known for a long time that technical change is the single most important force driving the secular process of growth (Abramovitz, 1956; Solow, 1957).From a purely financial (risk) perspective, Silicon Valley is an engine of growth because it is really good at developing uncorrelated assets using new technologies. That is, while everybody is happy with proven technologies, the creative crowd in the valley is willing to bet on something totally new. As the result — and in accordance with both the financial and economic growth theories — Silicon Valley innovations stimulate growth and at the same time reduces overall financial risks.
By contrast, Wall Street innovations create a trade-off between growth and risks. Therefore, when the Wall Street creates a lot of innovation the financial system becomes prone to disasters (or as Nassim Taleb calls them "Black Swans").
tags: innovation, theory, technology, silicon valley, course, stanford