How the Facebook Economy Trumps the Real One

I couldn't help but noticing: Facebook has become a startup wonder and Web powerhouse at about the same time that the overall U.S. economy has hit the skids. So I decided to apply some cutting-edge economic analysis to determine whether there's a correlation.

[See 20 companies that cratered in 2010.]

First, a brief economic history of Facebook. Mark Zuckerberg started the site in 2004, while in college, and by 2005 he had relocated to Palo Alto, Calif., where little startups go to get big-time funding and make billionaires of the founders. In 2006, Facebook changed from a small-time membership site to a worldwide social network open to anybody. Microsoft boosted Facebook's profile in 2007 with a $240 million investment that put the startup's value at about $15 billion. Traffic grew in 2008 and soared in 2009, when the number of Facebook users nearly doubled. By 2010, there were a few days when Facebook even drew more Web traffic than Google. Zuckerberg, at 26, became the model for the lead character in a hit movie and Time's Man of the Year. And the social networking site began 2011 with a $450 million investment from Goldman Sachs that set the company's value at about $50 billion—more than Yahoo, Time Warner, or News Corp.

While Facebook has been taking off and Zuckerberg has been banking billions, however, a lot of other things have been going wrong. So I created a few charts comparing Facebook's growth to the unemployment rate, the median price of a home, and the S&P 500 stock index. If you're a conspiracy theorist, you'll be very, very suspicious.

[See why baby boomers are bummed out.]

Since June 2007, for instance, when research firm comScore began tracking Facebook stats, the number of unique Facebook visitors in the United States has followed a trendline very similar to the unemployment rate. Both began an upward spike in the fall of 2008, with a sharp increase throughout 2009. Facebook's growth, according to comScore, started to level off a bit over the last few months of 2010; unemployment also flattened out, hovering just under 10 percent.

So is Facebook responsible for rising unemployment? Not directly, since Facebook itself has added nearly 2,000 jobs since the recession began at the end of 2007. But what about everybody else, especially those who are unemployed? Surely some of them became bored after getting laid off, they joined Facebook, got addicted to the Texas Hold 'Em or Lady Gaga or Sarah Palin or Jackass pages, and dropped out of the labor force. No wonder we have an epidemic of long-term unemployment. Maybe the most popular Facebook pages should have a few job listings posted near the bottom. After all, Facebook knows your employment status, along with the last job you held, your former salary, the bare minimum you'd work for, and the most scandalous thing you've ever done to embarrass your employer.

[See who will prosper in 2011.]

Home values have gone in the exact opposite direction of Facebook's popularity. Home values peaked in the summer of 2006, according to the National Association of Realtors—just about the time Facebook's membership was starting to ramp up. Then, as Facebook's membership surged, home values plunged. You might think there's no connection—until you think about hugely popular Facebook games like Cityville, Farmville, and Frontierville, which have hundreds of millions of users. Can it be a coincidence that Americans have become addicted to fantasy worlds in which they build cities, tend farms, and gamely settle the frontier, while in the real world they default on their mortgages and move back in with their parents? The American Dream is dying in Detroit and Las Vegas at the same time it's thriving in virtual worlds where collateralized-debt obligations, foreclosures, and repo men aren't a problem.

Facebook's impact on the stock markets has been a bit harder to isolate—until you factor in government intervention. The stock market peaked in October 2007, which was nearly the same time as Microsoft's big investment in Facebook. Microsoft has now more than tripled its money. But the average stock market investor endured a nauseating market plunge in late 2008 and early 2009, and is still down about 20 percent from the peak. That started to worry the Federal Reserve, which in 2009 launched its "quantitative easing" program—known around the Fed as the "Facebook Put." Since then, the stock-market trendline turned sharply upward—mimicking the Facebook trendline. If the Fed is ever forced to reveal the details of its inner workings—as some in Congress insist it should—we'll no doubt learn that the esteemed central bankers have spent countless hours obsessing over Facebook and its impact on the broader economy.

[See why "recession-proof" jobs are a myth.]

Corporations, of course, have increasingly used Facebook to tout their offerings, at the same time they've slashed costs, cut payrolls, and enjoyed record profits. The Facebook pages for Coca-Cola, Starbucks, Oreo, Disney, Red Bull, Skittles, and Converse are all among the top 50 most popular Facebook pages (along with Facebook itself)—each with more than 12 million fans. That helps explain the efficiency revolution in corporate America: Why use humans to get your message out when you can use Facebook and avoid the extra healthcare and pension costs? Critics complain that we don't make anything in American any more, but if you look at the brilliant Facebook pages urging people to drink more soda and eat more candy, it will make you proud of American ingenuity.

So it's no surprise that Goldman Sachs, Wall Street's savviest money firm, has now taken a stake in the most powerful economic force on the Web. It may not do much for the Main Street economy, but the financial-technological complex has never been stronger. Best of all—for those in the Facebook Economy—Zuckerberg remains as ambitious as ever, determined to double Facebook's reach and hit 1 billion users. Let's hope that correlation with unemployment was just a coincidence.

Twitter: @rickjnewman

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