On May 15, Tyson, dean of the Haas School of Business at UC Berkeley, former national economic adviser to former President Clinton and board member of about 800 companies, came to talk about the old New Economy.
The real question, of course, is when will this damn non-recession-but-nasty-slowdown in technology end?
A light up ahead?
Despite the increasing pessimism of economists, there was actually a surprising bit of optimism among this crowd. It's a buzz I am just starting to hear from the tech set. My old pal Ellen Hancock, CEO of Exodus (EXDS), said she's starting to see some old customers return to her Web hosting business. At my table discussion, people seemed to see more light than dark now. Still, Auren found the people at his table to be more pessimistic. Maybe those folks were still trying to raise funding.
Tyson didn't want to make any predictions, but noted that the optimists are seeing a recovery by the end of the year. However, she also said that this is the fastest and most severe slowdown we've ever seen. One hopes that means a fast recovery as well.
Tyson did point to some good signs: Investment in equipment is at a post World War II high. Half of that is investment in IT, which means IT spending has accounted for 20 percent to 25 percent of the growth in the economy in recent years. She does not believe that we will enter into a Japan-like economic flu.
We have more policy and tax options, plus a budget surplus (for now) that can help prevent it. She believes that the measured productivity increase since 1995 is real, and the decline in Q1 this year was merely a blip. Unemployment and inflation are still low, and huge segments of the economy, such as health care, have not been affected yet.
On the other hand, she noted that this year has brought us negative growth in IT spending, after all that nice speedy increase. We could have a couple of slow years, she said, although we'll emerge stronger in the end.
The energy crisis could have an appalling effect on California. Some economists actually express more pessimism about the California economy than the national economy because of our energy shortage and inflation-inducing prices. Hey, aren't we supposed to be leading the way?
She also deflated the idea that President Bush's tax plan will help stimulate the economy. Tax cut benefits take a while to trickle into the economy.
By the time taxes are cut, we may already be on our way out of the doldrums. "One hundred billion worth of the tax cuts will come into effect when they're no longer needed" to stimulate the economy, she said.
Getting people to buy again
It seems to me that consumer psychology plays a huge role in the recovery, and that's something we cannot predict very well. Tyson talked about the "wealth effect." Until last year, a hell of a lot of people felt very wealthy, if not healthy or wise.
They spent and borrowed money against their wealth and put it into the economy. Wages have held up, but Nasdaq's decline makes everyone feel much poorer and more cautious. When the public will feel confident enough to hit the malls again is anyone's guess. Mine is before Christmas.
Most of the 10 people at my table were also surprisingly optimistic, although they were clearly worried about the energy crisis thing. My old pal Bill Reichert, president of Garage.com, seems to feel that the VC community is still spending at high levels historically, and that the best companies are getting funded.
Most of the dead meat in their portfolios has been fed to the vultures, and they should start some real investing again after they return from summer vacation.
It may be wishful thinking, but the inside word for today seems to be recovery. Keep an eye out for more signs. |
