I can only speak for the East Coast, and in microeconomic terms, but Google has definitely put a hurt on the market here. They are worse than all of the banks put together. The cream of the crop here---people who are too smart to veg out in a bank---are more than willing to go to Google, when they would otherwise be furthering some smaller and more important project, be it a startup, or just something else useful and in real need of a bright, computer-oriented mind. They're all funneling into Google. Google got them all right out of college, and they're probably going to keep them.
You cannot argue that we are better off this way. Google certainly is, but as a whole we are going to lose out. Clumping all those people together is not going to improve technology. It's going to make it worse, because there's a huge opportunity cost in taking all these people and sticking them in a mill. That's just how software works. If they were out in little groups in a lot of different areas, they could be making a huge difference. Google doesn't need 10,000 engineers who know Bellman-Ford and Knuth-Morris-Pratt and Miller-Rabin. It's too much overlap. And Google certainly isn't providing offerings in a quantity great enough to justify the overlap. They've hired well---too well---and now they're going to be having a great number of these people performing well below where they would if they were arbitraged out to somewhere else. The benefit of adding just one of these engineers to a smaller shop is incalculably higher than the benefit of giving him to Google.
That efficient asset allocation, and the providing of liquidity, have been grossly exaggerated in terms of their benefit to society in order to justify the poaching Wall Street does each year, is a truth generally acknowledged. Trading makes a few people much richer, but it does not make us richer, not in equal part. In fact, if you want to get nasty about it, the latest round of bailouts is costing us a great deal...
Now we've traded the Wall Street problem for the Google problem. Do we really need the top sliver of our graduates working on destructively taking market share from PayPal? Or fighting black-hat SEO fueled and exacerbated by the search-monopoly problem they created? Or contributing to an advertising arms-race at a growth rate much higher than that of the underlying market?
What project are they pushing forward that could possibly justify sitting on all this talent? I feel like if it was anything suitable I would've already heard of it by now.