This long-term depression (since around 2000-2001) is hidden in the data because the data we look at is aggregate. The collapse in the interior is outweighed on aggregate statistics by the booms that have occurred in places like SF, NYC, LA, Seattle, etc. These are places with closer links to finance and higher tech industries. The interior of the country was always the center of bedrock industry, but all that's been replaced by China.
IMHO anyone who argues otherwise is deluded, wrong, or a liar. Just visit a place like Kansas, Michigan, Ohio, etc. and look around a bit. The collapse is viscerally real and physically tangible. Everywhere you will see failing infrastructure, desperate cities installing casinos and other vapid quick-fix ways to stimulate commerce, and people with raging heroin and meth habits and loads of alcoholism. Hard drug addiction is a clear historical indicator of deep depression and social collapse. Then talk to young people and university graduates. You will find that all the best are leaving as soon as they can and that the dream of every young person is to get out.
The Midwest is where I'm from. Last time I was there it was a little bit scary. All the gun talk, fear and hatred talk, meth mouth at gas stations and grocery stores, and the general smell of collapse and pessimism. I grew up there and I've watched this happen. It was not like this in the 1990s. There's always been a bit of a gap between places like NYC and the "flyover country" but it was never, ever this extreme. Now it feels like third vs. first world. I actually almost felt unsafe there. I could feel this edge of alarming despair that triggered some kind of hindbrain "watch your back" emotion in me. My wife said the same thing.
Automation's role has been minimal so far when compared to the massive effect of wage arbitrage, but if self-driving trucks hit the mainstream we're going to see the bottom really fall out and it's going to be ugly... like rural USSR in the late 80s and early 90s ugly. Trucking and related industries are a major employer in the interior and it's been one of the few jobs that can't be outsourced. Of course this new technology will add new jobs: on the coasts to write the software and overseas to manufacture everything.
If this trend continues we're looking at a future not terribly unlike The Hunger Games (there's a reason these books are popular): mega-rich enclaves surrounded by "districts" that have reverted to something resembling a 19th century standard of living but with smart phones (and ubiquitous surveillance, drone attacks, etc.). Either that or there will be a backlash, possibly an over-reaction that tips completely into socialism or fascism. That's the other thing I heard the last few times I was there: depending on whether they leaned right or left people were almost ready to vote for that Hitler guy or that Lenin guy. Trump and Sanders are much, much milder cousins of these... expect far more radical and dangerous versions of both if nothing changes. Think Trump without the restraint and integrity or Sanders without any lingering belief in the American way... and both without any belief in the rule of law. You could even see a... well... "national socialist" hybrid: a warmonger Sanders or a socialist Trump.
Of course the globalists will retort that eventually wages will rise in places like China and the tide will start to balance if not actually reverse. That's the theory and indeed it would work if places like China were actually being run for the benefit of their citizens and if those citizens were allowed to participate in the global economy. But China's currency devaluation and continued clamp-downs on both free speech and free international movement of capital tell me that the few dozen party elite families that basically own China have other ideas. China is a cheap labor farm where its people are exploited as a resource, effectively a form of "light" slave labor, and all the benefits are to be captured by the Chinese Communist Party (China, Inc.) and its officials and state-linked industry leaders. If this view is indeed correct then the great outsourcing wave will never reverse and Western workers will forever have to compete with a 1.2 billion head work force held at perpetually deflated wages through currency manipulation and uneven trade agreements. The invalid assumption of globalism is that the leaders of other countries actually share liberal democratic values. They clearly do not. The slaves exist to serve, thank you very much, and this silly notion of universal human prosperity is for woo-woo Western liberals.
I do not blame the Chinese one bit. While we're de-industrializing they are getting screwed out of the first world status they've worked for all their lives. They were promised a gleaming future and they're huffing heavy metals instead while the buying power of their money is cut by edict. I blame their "owners" and the folks getting rich off this situation while deluding themselves about the realities. I do think there's a fair amount of self-delusion in places like Washington where lots of people want to believe the lets-all-sing-kumbaya globalist narrative. It would indeed be wonderful if it were true but I see absolutely no sign of any of the upside happening.
At least that's my pessimistic view. I hope I'm wrong. In any case I think this explains both Trump and Sanders, both of whom in their own way are running on an anti-globalist platform of reversing the above. I can't say I disagree all that much. The time may be near to call bullshit on China (and the whole globalist model) and erect import tariffs in proportion to the relative cost of foreign wages (and environmental protections, etc.). In other words: tax slave labor. Maybe the US can use the money to invade its interior and build roads and schools. I just hope we can do it without sacrificing liberal democracy and without starting WWIII.
As for Silicon Valley and the much ballyhooed collapse: don't fret much. There will likely be a pullback but the worst that will happen is the collapse of a few overvalued startups, a retrenchment, and a restart of the next cycle of growth. History is on our side, economically speaking. The thing to worry about is the naked fascism or punitive socialism about to bubble up from the massive inland region of America you've forgotten exists. While you are forced to endure a lack of catered sushi the interior will be experiencing yet another ratchet-step down. It didn't see the boom but it will see the bust.
It's completely ridiculous that software development is concentrated in any one geographic area. Software development can be done just as effectively from anywhere. So why isn't it spread as uniformly as the world's population?
Maybe part of the solution to the problems you describe is a call for programmers (and other professionals that can work from anywhere) in the US's interior to not leave for the coasts, but start companies and hire people locally.
Solving that problem would help the interior for the reasons you explain.
If people here can create self-driving cars, delocalizing software work doesn't seem so far fetched. I'm inclined to believe that there is a lack of will and vision rather than a lack of ability.
That illustrates another point: ecosystems have a draw because they draw people in, and brain drain has the opposite effect. Both effects are exponential: the more people come the more people come. That's part of why interior places that have very strong university systems or major local employers with a lot of drawing power (or government labs, etc.) have been spared the worst of it.
I wasn't implying that labor arbitrage is the only cause of this depression, just that it's probably the largest single cause.
I do feel a potential blog post in this, but I'm waiting to see how it shakes out in the near term. Even blogging about politics makes me sick but there are things that might need to be said. Hopefully somebody else will say it first and let me off the hook.
I don't think you can pin all of this on interest rate hikes and it is not all tech, or at least all Silicon Valley startups. It's a combination of globalization, a much more service oriented economy than before, and some political decisions that ate away at the middle class (especially lower middle) in favor of wealthy interests.
Things aren't improving either since Brownback seems to be happy enough with companies leaving the state despite the low taxes because he and his ilk refused to acknowledge that the major corps wanted well educated workers and have on many occasions worked with Wichita State University to improve their programs. It's why I left more than anything. The anti-LGBT sentiment is bad, but having no jobs in my field is worse.
Edit: I believe it wasn't an ad, but actually an Op-Ed pinned by Carl Brewer that gave the numbers I described on the growth rates.