The Economy: Some Reasons for Hope
It would be hard to find many economists who would argue against the statement that U.S. and world economies are looking pretty grim as we head into March of 2009. We have some rather substantial economic difficulties to overcome.
Nor is the tech sector immune to the bad news. It can perhaps be argued that some technology companies might be hurt less than the general economy. Many are relatively young and don't face pension burdens comparable to those of older more traditional companies. A few, such as Apple, seem to be holding up relatively well for the moment, bolstered by innovative and in-demand products. Overall, however, one can't really expect the tech sector to skate by unaffected by a damaged banking system, battered consumers, and a generally weak business environment.
Despite the foregoing negatives, however, I think it is important to keep in mind that there are some positives as well in the economic picture. Here are just a few:
1. Much of the bad news is out of the way, particularly in the stock market. I don't know where stocks will be three months from now, but I can say with certainty that a lot more of the bad news has been factored into their price than was true in the middle of last year.
2. Energy is a lot cheaper than it was. That may not be enough to turn things around by itself, but it's certainly better for a weak economy to have the price of oil hovering around $50 a barrel than around $150 a barrel. Every dollar that doesn't end shipped over to Venezuela (or elsewhere) to buy oil is a dollar available for more productive use.
3. Despite occasional comparisons in the news between our current economic situation and that of the Great Depression in the 1930's, there are many, many differences that make if very unlikely the current downturn will end up nearly as bad as that one: deposit insurance, unemployment insurance, a more knowledgeable Federal Reserve Systems with more tools available to it, to name a few.
4. It's front page news when a big company lays off a lot of workers. If some of those layed off workers of an entrepreneurial bent, however, go on to start new companies (some if which may become the big companies of tommorrow), that gets a lot less attention. That's not to say that the bad news is not bad. It's just that in a dynamic economy companies grow and shrink and start and die all of the time. Perhaps it's due to some quirk in human nature, but it seems to me that the bad news draws proportionally more attention.
5. The government is committed to taking action. I'll admit that I feel some trepidation as well as reassurance at that idea. In the short term, however, regardless of quibbles one might have over certain details of the stimulus package, it stands to reason that when the government starts throwing money around in a downturn, there will be at least some positive effect in the short-term in that more people and organizations will have the resources to buy things and hire people than would otherwise be the case. To the extent that some people will be employed and paying taxes who would otherwise not be, the stimulus package should actually end up costing less than the official figure would indicate.
Will some of the money get wasted? Almost certainly. Will there be a problem of special interest groups clamoring to keep the money flowing their way even after economic growth resumes? I would certainly think so. On the narrow question of whether the stimulus package will help end the current downturn faster than would otherwise be the case, however, I have to believe the answer is yes.
Like all previous economic downturns in history, I expect this particular one will end as well, perhaps sooner than the gloom and doom in the news media would lead us to believe.
Ted
Nor is the tech sector immune to the bad news. It can perhaps be argued that some technology companies might be hurt less than the general economy. Many are relatively young and don't face pension burdens comparable to those of older more traditional companies. A few, such as Apple, seem to be holding up relatively well for the moment, bolstered by innovative and in-demand products. Overall, however, one can't really expect the tech sector to skate by unaffected by a damaged banking system, battered consumers, and a generally weak business environment.
Despite the foregoing negatives, however, I think it is important to keep in mind that there are some positives as well in the economic picture. Here are just a few:
1. Much of the bad news is out of the way, particularly in the stock market. I don't know where stocks will be three months from now, but I can say with certainty that a lot more of the bad news has been factored into their price than was true in the middle of last year.
2. Energy is a lot cheaper than it was. That may not be enough to turn things around by itself, but it's certainly better for a weak economy to have the price of oil hovering around $50 a barrel than around $150 a barrel. Every dollar that doesn't end shipped over to Venezuela (or elsewhere) to buy oil is a dollar available for more productive use.
3. Despite occasional comparisons in the news between our current economic situation and that of the Great Depression in the 1930's, there are many, many differences that make if very unlikely the current downturn will end up nearly as bad as that one: deposit insurance, unemployment insurance, a more knowledgeable Federal Reserve Systems with more tools available to it, to name a few.
4. It's front page news when a big company lays off a lot of workers. If some of those layed off workers of an entrepreneurial bent, however, go on to start new companies (some if which may become the big companies of tommorrow), that gets a lot less attention. That's not to say that the bad news is not bad. It's just that in a dynamic economy companies grow and shrink and start and die all of the time. Perhaps it's due to some quirk in human nature, but it seems to me that the bad news draws proportionally more attention.
5. The government is committed to taking action. I'll admit that I feel some trepidation as well as reassurance at that idea. In the short term, however, regardless of quibbles one might have over certain details of the stimulus package, it stands to reason that when the government starts throwing money around in a downturn, there will be at least some positive effect in the short-term in that more people and organizations will have the resources to buy things and hire people than would otherwise be the case. To the extent that some people will be employed and paying taxes who would otherwise not be, the stimulus package should actually end up costing less than the official figure would indicate.
Will some of the money get wasted? Almost certainly. Will there be a problem of special interest groups clamoring to keep the money flowing their way even after economic growth resumes? I would certainly think so. On the narrow question of whether the stimulus package will help end the current downturn faster than would otherwise be the case, however, I have to believe the answer is yes.
Like all previous economic downturns in history, I expect this particular one will end as well, perhaps sooner than the gloom and doom in the news media would lead us to believe.
Ted
posted by TedTheBlogger | 10:36 AM
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