Signs of a tech pickup

Posted by: Michael Mandel on August 24

Today the NYT ran an article entitled “Subprime Fallout Could Help Venture Capitalists”:

Could the subprime problems that have fouled the public market be a mixed blessing for Silicon Valley’s high-technology investors?

Highly out of favor in recent years, public offerings of technology start-ups are enjoying a mild resurgence. And some venture capitalists are arguing that the fragile momentum could be bolstered by the problems that mortgage-related securities have caused in the stock and credit markets.

This echoes my recent post “The Bright Side”

This is a very important point, for both investors and for policymakers. Housing and housing finance are going to be bombed out for the foreseeable future. However, as long as the Fed and the other central banks don’t allow the financial system to crater, the credit and resources that would have gone into housing are going to flow into technology instead.

However, having said that, we still don’t understand the channels by which this may happen. Think about the way that the tech bust of 2001 turned into the housing boom. One avenue, of course, was the very low interest rates by the Fed.

But that wasn’t the only channel. In the aftermath of the 2001 recession, tech companies shifted much of their production to Asia. That stimulated the Asian economies, which led to high savings rates, which in turn helped hold down long rates. That in turn, held down mortgage rates and gave the Asian banks plenty of money to buy mortgaged-back securities. (In the same issue of the NYT was an article on chinese banks holding billions in securities back by subprime loans.)

This channel is not going to run in reverse, though. The factories are in Asia for good. In terms of tech demand, the question is what kind of increase would stimulate U.S-based spending. I’m going to think about that.

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Reader Comments

Brandon W

August 24, 2007 10:44 AM

An accelerating shift to telecommuting workers could drive tech spending. There's no reason companies should have to shoulder the expense of office space when that burden can be pushed off on to employees, thereby increasing the bottom line. Employees get the perk of saving on gasoline and working in their pajamas. Best Buy has implemented this in recent years and seen 10%+ growth in productivity almost immediately. So you get a 10% productivity burst while also taking much of the cost burden of office space off your company. There will be some tech spending necessary (such as Voice-over-IP telephony and Virtual Private Networks) to broadly implement telecommuting, but computers are cheaper than real estate and maintaining office buildings. Since virtually all new job growth in recent years has been from companies with fewer than 20 employees, those small companies can enjoy the lower-cost of virtual workspace, and not pay for so much (or perhaps, any) office space. What this may do to the commercial real estate market is outside the scope of the discussion.

Mike McCune

August 25, 2007 02:35 PM

Michael, I'm not sure that it was a tech bust that turned into a housing boom as much as it may have been a housing boom that busted the tech boom. And that housing boom (at least in the USA) may have been started by 1998's Tax Act significantly altering the rules regarding capital gains on residential housing. It also was the act that created ROTH IRA's.

Robert Shiller argues in his book "Irrational Exuberance" that since 1890 most all of the inflation-adjusted price gains in housing came during just two periods: right after WWII (the GI bill) and "a period that appears to reflect a lagged response to the 1990's stock market boom...with the first signs of increase occuring in 1998". p. 20.

Our housing booms are the result of government intervention, and most recently "turbo-charged" by super low interest rates by the Fed thought needed to counter the exogenous event of 911 during a recession. These events are as unpredictable as earthquakes. We have no idea what governmental policies are going to be enacted by this time next year...or what the unintended consequences will be. -Mike McCune

Mike Reardon

August 26, 2007 05:13 PM

Not to challenge the tech effect but if Wal-mart is the universal product provider for the nation. Silicon Valley VC's investment are helping to create universal back office service products for retail and all other business services. VC's tech investments are concentrated in large part on software applications that enhance those universal platforms and may not be that firmly attached to our market but imported with other foreign products. We are not the center of tech production of products or services production. These cheap net products and services "should allow business service expansion and use" but are not necessary great employment creators. I question if anything but "the use of" cheap tech products and services is to be gained by this country.


August 27, 2007 11:32 PM

***Best Buy has implemented this in recent years and seen 10%+ growth in productivity almost immediately. So you get a 10% productivity burst... ***

Brandon, did you just take this one spurious anecdotal example and casually assume it'll apply across an entire $14 billion economy? Well done chum! And for a company where surely not more than one out of 100 employees could possibly work from home -- considering that they are, you know, a retail store.

I thought people quit getting carried away with telecommuting back in 2001 or so. Here in the real world, the vast majority of jobs cannot be done from home, and even for the jobs that can be, managers seem to have an odd preference for things like oversight and teamwork and human interaction.

Brandon W

August 29, 2007 12:49 PM

I used Best Buy as an example of the application of telecommuting, not as a suggestion that the entire economy could operate that way. I would think anyone would be able to grasp that. Apparently not. Having said that, while you make a point that the retail positions can not operate via telecommuting, you're ignoring some good data:
* 60% of Best Buy HQ, 2400 employees, now work by telecommuting.
* This saves Best Buy $13 million/year just because the turnover rate is 3.2% lower. It saves tens of millions more in lower cost of office space.
* I was mistaken in my recollection that there was a 10% productivity jump. The productivity jump was actually 35%. Please read that again.

Obviously - and apparently the obvious escapes you - the entire economy can not operate by telecommuting. Michael was contemplating things that could drive tech spending, and I was suggesting one possibility. Any assumption beyond that is your own.

You say that "managers seem to have an odd preference for things like oversight", but clearly that has not been a problem for Best Buy. The concept is called "Results Only Work Environment." I.e. "Get your job done or your fired." It's easy. Most white collar workers could telecommute and simply produce or get fired. Easy enough. Anyone is replaceable. Including you. Maybe especially you, since you aren't with the times.

In regard to teamwork and human interaction, this is what teleconferencing (tech spending!) is about. All of this could be a driver of tech spending. VoIP, teleconferencing systems, Instant Messaging and chat rooms, online collaboration, and more would facilitate telecommuting.

Can everything be turned into telecommuting? Obviously not; any half-blind monkey can see that. But could it be widely and successfully implemented? Obviously it could. And that could drive tech spending. (You know... "tech spending", the topic at hand).

Thank you for your interest. This blog is no longer active.



Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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