Tech Industries Not at the Center of Economic Storm, But Storm Is Bigger this Time

All industries are cyclical: good and bad times come and go, to a large extent along with the strength of the economy as a whole. Even those who help with the unavoidable - death and taxes, can offer a more complete range of services and products to clients whose portfolio’s are doing well, or at least whose job’s are stable. It’s rare, however, for someone not yet 30 years old to have had their industry go up, then down, then up again, and now on the way back down again, in the space of their career.

And it is on the way down, but how far? The last time a bubble of irrational exuberance popped, we were standing right on top of it. Even those with little .com exposure ran out of Y2K work to do. This time, we were nowhere near the bubble. Actually, the new bubble was in part caused by mutual fund managers with more incoming investment than brains, needing somewhere to put the money .com couldn’t be trusted with.

Instead of giving billions to businesses that had no chance of ever turning a profit, they gave it out in hundreds of thousands at a time to people who have no chance of paying it back. A mortgage is theoretically safer than tech R&D, since you can foreclose on the underlying property. Unfortunately, all investments have one thing in common: they are only worth what someone is willing to pay for them, when you need to sell them. And people without jobs don’t buy houses.

We may not have been near the bubble, but it was big, and made out of toxic debt, and now we’ve all been covered in toxic-debt slime. When Intel, Microsoft, and Google, are all laying people off, it is impossible to say IT is getting through this unscathed. Bad times lead to shake downs, and companies that aren’t ahead of the game suffer. Companies with huge manufacturing assets and labor pools, like Intel, are susceptible no matter what they do.

That all being the case, there might be a silver lining. The grizzled, twenty-something, veterans of the computer industry seem to be resisting the toxic slime’s economic properties, at least in relation to people in other industries.

One thing we learned last time is that, for some reason, the businesses and people that make the computers and communications ubiquitous in modern life possible, and the families they support, don’t deserve the same treatment given to other industries. The reasoning for this is widely open to debate, but it is obvious that a solid business model isn’t a criterion. For the people who have been laid off, and their families, obviously help is needed. But relative to the economy as a whole, computer hardware, and IT in general, are hanging in there.

Also, governments aren’t explicitly bailing out tech (in the States at least, Canadian businesses can depreciate hardware bought from 2009-2011 at 100%, creating significant tax savings), but IT is going to pick up some crumbs. By virtue of them being everywhere, it is impossible to spend money without spending some on computers. Elements of the US stimulus package intended to combine addressing immediate problems with long term benefits in particular, will see money going to computer hardware.

$20 billion of the money going into health care (a subject the president will be judged by as soon as people can stop worrying about the economy) is aimed at improving electronic record keeping in health care, a long overdue project. $6 billion is going to improve broadband communications infrastructure. There’s also $20 billion to increase the sophistication of the power grid, creating a so called ‘smart grid').

While this is certainly good news for the time being, we’ve seen some seriously short-sighted thinking in the massive cut to education spending. Apparently, trimming the pork from this bill included taking $67 billion out of money for school construction and modernization. That includes $6 billion specifically for modernization of higher education, and $1 billion for technology education in general, which puts technical training that much further out of reach. This didn’t just remove the immediate construction, IT, and education employment benefits.

There is also a generation or two that will have further problems finding good jobs, with all of the effects they will have on the economy. You can use the tax cut you got instead on a computer and private classes so your kids have some job skills that apply to this century.