I think you only need two kinds of people to create a technology hub: rich people and nerds. They're the limiting reagents in the reaction that produces startups, because they're the only ones present when startups get started. Everyone else will move.
Observation bears this out: within the US, towns have become startup hubs if and only if they have both rich people and nerds. Few startups happen in Miami, for example, because although it's full of rich people, it has few nerds. It's not the kind of place nerds like.
Whereas Pittsburgh has the opposite problem: plenty of nerds, but no rich people. The top US Computer Science departments are said to be MIT, Stanford, Berkeley, and Carnegie-Mellon. MIT yielded Route 128. Stanford and Berkeley yielded Silicon Valley. But Carnegie-Mellon? The record skips at that point. Lower down the list, the University of Washington yielded a high-tech community in Seattle, and the University of Texas at Austin yielded one in Austin. But what happened in Pittsburgh? And in Ithaca, home of Cornell, which is also high on the list?
I grew up in Pittsburgh and went to college at Cornell, so I can answer for both. The weather is terrible, particularly in winter, and there's no interesting old city to make up for it, as there is in Boston. Rich people don't want to live in Pittsburgh or Ithaca. So while there are plenty of hackers who could start startups, there's no one to invest in them.
There's more, and Paul is both right and wrong in a lot of big ways. Some of his errors have to do with how he models the Silicon Valley. Doesn't anyone remember the role of the defense industry out there? Lockheed, Ford, and Westinghouse created and then unleashed a huge pool of engineering talent in the South Bay. The Shockley/Fairchild story that he repeats is only part of the nerd narrative. And eccentricity requires wealth -- he's right about that -- but it's not just investing wealth that matters; it's wealth across the spectrum. Rich people matter not because they can put money in new ventures; rich people matter because someone has to pay the taxes that support the towns where the nerds want to play. Read John Markoff's What the Doormouse Said, and Jeff Goodell's Sunnyvale to get a sense of the suburban wealth that subsidized the high tech revolution. What happened in Northern California is that a wealthy culture was willing to tolerate and subsidize eccentricity at low levels. Over time, that eccentricity built on itself, to the point that it overthrew both the cultural and economic establishment.
The lesson for Pittsburgh, then, isn't quite the one that Paul Graham draws. He's pretty skeptical about Pittsburgh's prospects, because he doesn't see the money. But Pittsburgh has plenty of wealth. It doesn't have investing wealth, necessarily (it has capital, but not enough risk capital). It does have enough economic wealth spread generally across the region that Pittsburgh is a comfortable place to live. There are a lot of nice suburbs here, and a lot of pleasant and even wealthy neighborhoods in the City of Pittsburgh. What that wealth doesn't do particularly well, though, is tolerate the cultural and economic eccentricity that urban and university communities inevitably produce. To turn a rhetorical phrase, on the whole, Pittsburgh's taxpaying and grant-giving wealthy aren't happy about subsidizing subversion. If you want to be skeptical about Pittsburgh, be skeptical that that culture will ever change. If you want to be optimistic, even if you don't want Pittsburgh to be another Silicon Valley, be optimistic that Pittsburgh will turn out to be willing to subsidize eccentricity, and willing to give that eccentricity some space to breathe.
Graham has promised Part Two shortly. Stay tuned.