by Mark Owen by Mark Owen
I work in the tech sector and I can feel some pain out there. Many people are losing their jobs, and their skill sets no longer fit with the current job market. This is not to say this is the first time this has happened in our economy. Many occupations that were at one time prevalent are only distant memories now. A skill set centered on horse drawn farm implements is certainly not a growing sector in the job market. It is different this time though. This is the human cost of the Federal Reserve's boom and bust policies, not the result of economic progress.
The easy credit policy the Fed followed in the 1990's led to the famous stock market bubble. The Fed spurred investment in the tech sector, malinvestments, through artificially low interest rates. In 1999, someone who could find the power switch on a PC could find employment and if you had highly desirable skills you could practically name your price. Software, hardware, telecom, you name it; it was a boom time for employment. Y2K, which was the lingo for the need to upgrade many software systems to be able to handle four digit dates since many older systems crammed all dates into two digits, added to the frenzy. Of course, the Fed added much liquidity to the market just in case the worst happened, and it did, though not what Alan Greenspan expected.
The NASDAQ peaked at 5000 in March of 2000. Over the next couple years, the NASDAQ lost 75% of its value, easy credit policy and all. The malinvestment bubble had ended and with it the jobs it created. As basic economic theory would predict, employment and wages have been falling ever since. Compuware, a Michigan based tech firm, recently cut the wages for their employees not already laid-off 10%. It is tough out there.
This is the legacy of the Federal Reserve. The Fed creates malinvestment not only in private business investment, but they also create skill malinvestments and misallocations in the labor market. We now have large numbers of highly trained tech workers who can not find jobs or are doing low skill jobs not in their field. Lives have been turned upside down and families have had to declare bankruptcy as a result of the false dynamics created by the Fed. Even the Indians are going home since they can not find employment. In Bangalore, you can at least find a job even if the wages are lower.
To be fair, there is the international labor dynamic also, where lower labor costs have led to jobs moving to India, but the need to radically cut costs in post bubble firms losing money has caused tech jobs to go overseas at the rapid pace it has of late. In many cases, firms are looking purely at costs with quality being a secondary concern in the drive to become profitable again.
Alan Greenspan's current policies have slowed the ability of firms to return to profitability. The current easy credit policies to "re-inflate" the economy have slowed the necessary creative destruction in order to bring the economy back into balance. Overcapacity remains in many tech industries. Firms with enormous debt have been able to refinance at lower interest rates and continue to limp along. The result has been poor pricing power for firms that are the industry leaders. Mergers are slowly taking care of some of this, but it is a slow clumsy painful process. This uncoordinated economy is the legacy Greenspan has left us.
The real human face of Greenspan's legacy can be seen all around America. Tech workers either can not find work in their field or have had to settle for reduced salaries. People have invested in skill sets that were the result of malinvestments created by easy credit. Greenspan's ill-conceived monetary policy has created much pain. Alan, can you feel our pain?