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> My only thought is that they figure they can make more with low-risk investments than they can hiring employees. That is exactly what is going on. A lot of p

> My only thought is that they figure they can make more with low-risk investments than they can hiring employees. That is exactly what is going on. A lot of people don't understand that if your risky business can't make as much return as the "risk free return rate" (i.e. the rate of return on US Treasuries), the only logical thing to do (as a business owner) is close up shop, as all your hard work is earning LESS money than just dumping it in CDs. When the risk-free rate was essentially zero, or in some cases negative, people would throw around money all over the place in hopes of getting some positive return. The bar has just been raised so that is no longer the case.

flashback2199 3y ago
That doesn't make sense because tech companies are not sticking cash in ~4-5% annual return treasuries, it would make sense if this were the 70s with double digits interest rates.
- ProfessorLayton 3y ago
  But it does make sense in the broader tech context, especially for companies that need funding, which is a large portion of the companies that have conducted layoffs this year. VCs for example need to raise their own cash to invest, and investors are less likely to take a huge risk with VCs when the risk-free rate is so high.
  - flashback2199 3y ago
    You're right, I just think there have been more layoffs than can be explained by a couple percent increase alone. HBR also agrees with this view.
    - hn_throwaway_99 3y ago
      > I just think there have been more layoffs than can be explained by a couple percent increase alone. Sure, of course. There was also massive over-hiring during the pandemic in anticipation of some sort of "new normal" that didn't pan out. My comment was more in response to the idea of "why should interest rates affect company hiring for companies that have a ton of cash on hand and are profitable?"
- jrockway 3y ago
  I think companies are. When I worked at Google, I put my bonuses in a deferred compensation plan which was managed by the internal treasury management team. That's the team that tries to make money off of cash that's just sitting around with nothing to spend it on. I think I got about 3% return on that, which was in the era of 0% savings accounts and 0 yield US treasuries. (With 20/20 hindsight, you would take all that money in Google stock and hold it, of course, but I had more than enough exposure to the share price at the time.)
adventured 3y ago
If that were true, there would be no hyper low margin businesses, much less ones that thrived during the even worse 1970s / early 1980s. Nobody would start such businesses. Witness: Walmart, Costco, Target and most of the retail sector. People have never stopped creating these low margin businesses. You're not actually earning a return via US treasuries, you might get lucky and keep pace with inflation. More broadly you've dropped the context, which is that the business in question can be growth positive even with high risk and tiny margins. US Treasuries are not growth positive, they don't grow and spit off new capital to reinvest into further expansion. Operating with a 2.3% operating income margin is a risky business, retail is extraordinarily difficult and is extraordinarily risky to start a business in due to the very low margins, and yet people will keep on doing it perpetually regardless of interest rates. Earning a lower rate of return for eg five years on a business (vs treasuries), while re-investing into said business, can be the rational thing to do for a larger longer term payoff (which you'll never get out of treasuries). Your premise ignores pretty much all the very complex nuance to business. To say nothing of that the rational thing to do sometimes, is to do what you enjoy, which perhaps is operating a very low margin convenience store instead of sitting on a stack of treasuries. Businesses (more common in small to mid-size businesses) are frequently not run for maximum return, and that action can in fact be quite rational.
- hn_throwaway_99 3y ago
  I never implied that low-margin businesses can't grow faster and give much better returns on capital than Treasuries.

flashback2199 3y ago

That doesn't make sense because tech companies are not sticking cash in ~4-5% annual return treasuries, it would make sense if this were the 70s with double digits interest rates.

ProfessorLayton 3y ago
But it does make sense in the broader tech context, especially for companies that need funding, which is a large portion of the companies that have conducted layoffs this year. VCs for example need to raise their own cash to invest, and investors are less likely to take a huge risk with VCs when the risk-free rate is so high.
- flashback2199 3y ago
  You're right, I just think there have been more layoffs than can be explained by a couple percent increase alone. HBR also agrees with this view.
  - hn_throwaway_99 3y ago
    > I just think there have been more layoffs than can be explained by a couple percent increase alone. Sure, of course. There was also massive over-hiring during the pandemic in anticipation of some sort of "new normal" that didn't pan out. My comment was more in response to the idea of "why should interest rates affect company hiring for companies that have a ton of cash on hand and are profitable?"
jrockway 3y ago
I think companies are. When I worked at Google, I put my bonuses in a deferred compensation plan which was managed by the internal treasury management team. That's the team that tries to make money off of cash that's just sitting around with nothing to spend it on. I think I got about 3% return on that, which was in the era of 0% savings accounts and 0 yield US treasuries. (With 20/20 hindsight, you would take all that money in Google stock and hold it, of course, but I had more than enough exposure to the share price at the time.)

adventured 3y ago

If that were true, there would be no hyper low margin businesses, much less ones that thrived during the even worse 1970s / early 1980s. Nobody would start such businesses. Witness: Walmart, Costco, Target and most of the retail sector. People have never stopped creating these low margin businesses. You're not actually earning a return via US treasuries, you might get lucky and keep pace with inflation. More broadly you've dropped the context, which is that the business in question can be growth positive even with high risk and tiny margins. US Treasuries are not growth positive, they don't grow and spit off new capital to reinvest into further expansion. Operating with a 2.3% operating income margin is a risky business, retail is extraordinarily difficult and is extraordinarily risky to start a business in due to the very low margins, and yet people will keep on doing it perpetually regardless of interest rates. Earning a lower rate of return for eg five years on a business (vs treasuries), while re-investing into said business, can be the rational thing to do for a larger longer term payoff (which you'll never get out of treasuries). Your premise ignores pretty much all the very complex nuance to business. To say nothing of that the rational thing to do sometimes, is to do what you enjoy, which perhaps is operating a very low margin convenience store instead of sitting on a stack of treasuries. Businesses (more common in small to mid-size businesses) are frequently not run for maximum return, and that action can in fact be quite rational.

hn_throwaway_99 3y ago
I never implied that low-margin businesses can't grow faster and give much better returns on capital than Treasuries.