4 ms·

Regarding worsening conditions for tech workers - my theory is that this is because tech is particularly sensitive to interest rates. Software developers are of

Regarding worsening conditions for tech workers - my theory is that this is because tech is particularly sensitive to interest rates. Software developers are often building products that will start making money in the distant future. With interest rates going up, the present value of these future cash flows goes down.

yowlingcat 3y ago
Very nice way to explain a concept that usually takes me several paragraphs.
sharts 3y ago
Hopefully this will result in a more conservative approach to tech with a greater focus on immediate needs vs long-shots in the distant future which tends to result in winner-take-all for the victors.
- slothtrop 3y ago
  Something tells me this won't impact the AI race, but otherwise I think you're right.
- ramesh31 3y ago
  >Hopefully this will result in a more conservative approach to tech with a greater focus on immediate needs vs long-shots in the distant future which tends to result in winner-take-all for the victors. Hopefully it doesn't, as that sounds really depressing.
layer8 3y ago
I don’t follow. Wouldn’t the future value (actual future benefit) of the product be independent of inflation, and when expressed in terms of eventual future pricing, simply increase with inflation?
- technotony 3y ago
  Future revenues are discounted to present value using a discount rate that increases as interest rates increase. This is called a discount cash flow model. Initiatively this makes sense because if a future dollar was the same as a today dollar you could just invest today's dollars in treasuries and have more in the future.
- injeolmi_love 3y ago
  Inflation as long as it’s predictable doesn’t really matter, since the future cash flows just get bigger with more inflation. However real interest rates do affect the discount rate; higher interest rates relative to inflation discourage investment since you could just put the money in a bank instead of taking risk. That means inflation does have an effect, since higher inflation is historically more volatile which raises risk thus real interest rates. That’s all assuming a free market without government price fixing interest rates.
  - tuatoru 3y ago
    Nice explanation! It's the second order effects.
- jldugger 3y ago
  It's not just inflation; actual real interest rates are now the highest they've been in a decade[1]. This is how the fed works -- raise real rates until demand for goods drops. Today's real rate is still not particularly high, but at the margins a doubling of the cost should lead to some drop in activity, and in borrowing. Look at a company like Apple[2], which has something like 100B in debt. After setting aside the 60B in cash, thats still 40B that they will eventually roll over into high cost debt, or unwind the business line that the debt fuels. Probably a mix of the two based on margin and risk. But once you start cutting business lines, you cut revenue and that usually leads to lower share prices, since equity is basically priced on a 15-30 year forecast. Which I think is why patio11 says that all tech compensation plans are an option on interest rates or some such. [1]: https://fred.stlouisfed.org/series/REAINTRATREARAT10Y https://fred.stlouisfed.org/series/REAINTRATREARAT10Y [2]: https://finance.yahoo.com/quote/AAPL/key-statistics?p=AAPL https://finance.yahoo.com/quote/AAPL/key-statistics?p=AAPL
ggm 3y ago
The lack of labour organisation and oversupply of notional workers (I say that because unless something has changed a new graduate is not performant in role for a long time, 18 months possibly) surely has more to do with it? Having seen 7-10% layoffs in coding & development staff, then the natural rate of full employment in this sector is way over-achieved: there's a massive supply of labour to fill holes, Either price yourself down, or go hungry.

yowlingcat 3y ago

Very nice way to explain a concept that usually takes me several paragraphs.

sharts 3y ago

Hopefully this will result in a more conservative approach to tech with a greater focus on immediate needs vs long-shots in the distant future which tends to result in winner-take-all for the victors.

slothtrop 3y ago
Something tells me this won't impact the AI race, but otherwise I think you're right.
ramesh31 3y ago
>Hopefully this will result in a more conservative approach to tech with a greater focus on immediate needs vs long-shots in the distant future which tends to result in winner-take-all for the victors. Hopefully it doesn't, as that sounds really depressing.

layer8 3y ago

I don’t follow. Wouldn’t the future value (actual future benefit) of the product be independent of inflation, and when expressed in terms of eventual future pricing, simply increase with inflation?

technotony 3y ago
Future revenues are discounted to present value using a discount rate that increases as interest rates increase. This is called a discount cash flow model. Initiatively this makes sense because if a future dollar was the same as a today dollar you could just invest today's dollars in treasuries and have more in the future.
injeolmi_love 3y ago
Inflation as long as it’s predictable doesn’t really matter, since the future cash flows just get bigger with more inflation. However real interest rates do affect the discount rate; higher interest rates relative to inflation discourage investment since you could just put the money in a bank instead of taking risk. That means inflation does have an effect, since higher inflation is historically more volatile which raises risk thus real interest rates. That’s all assuming a free market without government price fixing interest rates.
- tuatoru 3y ago
  Nice explanation! It's the second order effects.
jldugger 3y ago
It's not just inflation; actual real interest rates are now the highest they've been in a decade[1]. This is how the fed works -- raise real rates until demand for goods drops. Today's real rate is still not particularly high, but at the margins a doubling of the cost should lead to some drop in activity, and in borrowing. Look at a company like Apple[2], which has something like 100B in debt. After setting aside the 60B in cash, thats still 40B that they will eventually roll over into high cost debt, or unwind the business line that the debt fuels. Probably a mix of the two based on margin and risk. But once you start cutting business lines, you cut revenue and that usually leads to lower share prices, since equity is basically priced on a 15-30 year forecast. Which I think is why patio11 says that all tech compensation plans are an option on interest rates or some such. [1]: https://fred.stlouisfed.org/series/REAINTRATREARAT10Y https://fred.stlouisfed.org/series/REAINTRATREARAT10Y [2]: https://finance.yahoo.com/quote/AAPL/key-statistics?p=AAPL https://finance.yahoo.com/quote/AAPL/key-statistics?p=AAPL

ggm 3y ago

The lack of labour organisation and oversupply of notional workers (I say that because unless something has changed a new graduate is not performant in role for a long time, 18 months possibly) surely has more to do with it? Having seen 7-10% layoffs in coding & development staff, then the natural rate of full employment in this sector is way over-achieved: there's a massive supply of labour to fill holes, Either price yourself down, or go hungry.