The Impact on Tech of Ineffective U.S. Stimulus Package


I had to provide an overview of the impact on the tech market the package that seems very long on ineffective spending and short on actual stimulus. With CEOs slipping out the economic U.S. national recovery until 2010, any upside would be appreciated, but unfortunately the stimulus package, from what I can ascertain, won't be providing much of it. Granted, some of the alternatives being proposed are worse.


I've seen a lot from folks like Rachel Maddow who seem to connect stimulus directly to spending by effectively avoiding the long-term implications of such an approach. For instance, paying someone to paint your building will employ them as long as the money or project lasts, but it simply defers the long-term problem of their being unemployed unless you either come up another project, they find another customer, or they get a real job.


This is the whole "give a man a fish" (there are some funny improvements to this) saying and showcases the problem of sustainability. Just helping people pay bills for a time doesn't fix the fundamental problem that they are dealing with (no permanent jobs) and, when the money runs out, you still have the problem -- just a lot less money or, in this case, a lot more debt.


So let's say you take a bunch of unemployed folks from a variety of careers and you put them to work building roads for a couple of years. The projects then complete or the money runs out, what do these people now do? "Road Enhancement Engineer" on their resume' probably won't put them at the top of their chosen field. In that future time the the road working field now has a huge labor surplus putting them back out of work, and you are now worse off than you were because these poor folks are actually less employable than when they started.


Generally, in Finance 101, you learn about things like profit, the need to have revenues exceed expenses, and that you need to plan out what will happen in the future. In this case, how are you going to pay a near-legendary debt and keep people employed once the money from the package runs out? Were the U.S. a company, I think we could all see that increasing expenses and lowering revenues with the result being much higher long-term debt and little in the way of revenue enhancements to pay it to be unsustainable.


I'm hardly alone in saying this thing is crap. Granted there clearly is a trend to letting the next administration handle the now much larger problem, but wouldn't it have been better to fix it?

Death by Compromise

This doesn't just happen in governments -- it happens in business. This is when two parties negotiate out something that is non-viable. For instance, let's assume one politician wants every soldier to have a good bullet-proof vest and another wants to spend half of the projected cost. The negotiated agreement is likely to be cheaper vests for everyone that actually don't stop bullets. In that instance, the politician that wanted everyone to have a vest wins, the politician that didn't want to spend the money wins, and the soldier loses. This showcases an unfortunate side effect with the political process in that both sides of a negotiation can claim victory even though the result is a total failure.

Impact on Tech

My friend Sam Diaz over at ZDNet is very excited about the package and thinks it will provide a massive increase in tech spending, largely due to this piece in the New York Times. Unfortunately the New York Times appears to be based on the original Senate bill and the alternative energy component that had them so excited now appears to be MIA. Another win for Big Oil another loss for U.S. tech.


In short, and in looking at the bill, there is about $34B in tech stimulus in this $789B bill. This breaks down into about $8B for high-speed trains, which should consume a lot of sensors, servers, and networking components (line cameras etc); $19B to modernize healthcare (big bump for firms like EMC that do document management); and $7B to expand broadband (firms like Cisco benefit here and so should PC firms). While initially I thought that the education portion would have a lot of tech in it, this segment now reads like it is primarily focused on offsetting state funding cuts and little seems earmarked for upgrading technology in the now compromised bill. There is some alternative energy spending, but it appears largely to be subsidized loans for alternatives, the smart electricity grid, and efforts to conserve energy or clean things up. Hardly the huge push to getting off oil that was expected.


So impact of this last compromise is difficult to determine.

Wrapping Up

While I'm personally very disappointed, particularly with the loss of the alternative energy provisions, the end result is that this bill will provide very little stimulus (the tax provisions are a bad joke) and that the benefits a lot of us were expecting for the technology segment just aren't there. Like a lot of you I had a great deal of hope for the current administration, unfortunately like many my hope is rapidly evaporating.


If the U.S. were a company, step one in a turn around is to either bring expenses in line with revenues or transition the company to model that will sustain profit.


This compromised plan does neither (apparently 200 economists are now agreeing) and that isn't good for the country or tech.