Were They Really Predictable? A Critical View of the Big Tech Layoffs
Allow me to address some of the common criticism
My last post has gone a bit viral. It led to a lot of great conversations (debates) with critics. I appreciate everyone who questioned me instead of accepting things at face value. I thought I’ll dedicate this week to address the top three criticism flung my way.
I’ll start with the easy one. I can’t tell you how many times I heard a variation of this: “The tech companies are making billions of dollars in profits. They shouldn’t be laying off people. They are so greedy”. Here’s an example with thousands of thumbs up on LinkedIn.
The standout quote really exemplifies this train of thought:
Did a new economic reality require this painful cut? If you think $17.3B in quarterly profit isn’t good enough, then yes. Clearly the market does as Google stock is up 4%.
What principal is the author arguing? Is a company morally obligated to keep every employee on payroll as long as they make a profit? What if a certain line of business is deprioritized? What if you have employees thumb twiddling for enormous salaries? What if you have 10 employees to do the job of 2?
And where do you stop? If you’re profitable, should you keep on hiring until profits drop?
This argument doesn’t hold water. But it gets worse. The real blame shifting is happening in that same LinkedIn post. Instead of blaming the real culprit: the FED, the money printing, and other the economic distortions created by government policy, he blames the corporations that played by the rules and followed the incentives set up by the same central planners that caused the problem in the first place.
A harder criticism to address is the following: If it’s the distortions in the economy, why hasn’t it affected other industries?
My original post dealt with big tech specifically because of the magnitude of the layoffs and the clustering of all the announcements. But that doesn’t mean other industries are immune. Hasbaro, 3M, Dow, Impossible Foods, Wayfair and many others have announced layoffs. Fun fact: you can track the layoffs at layoffs.fyi if so you please.
When inflation rears its ugly head, we hear the headline number - say 6%. Most people think that prices have gone up by 6% across the board. But that’s not how inflation works. Some things could have gone up by 100%. Others could have gone down. The weighted average of some theoretical basket of all these changes is 6%.
This is because newly printed money doesn’t flow equaly across the entire economy. Some sectors get a bigger share of the (inflating) pie. Naturally, those same sectors are the ones to hurt the most when the tide goes out and we see who is swimming naked. In this last round, I believe it was tech.
Finally, If this was so obvious, why have the companies been fooled? Didn’t they know inflation was coming?
This is admitedly tricky for me to address. I am tempted to use my go to source of all bad things in the world - the government - to lay blame. They said it was different this time. They said the inflation was transient. They said rates will stay low for a long time. They said quantitative easing will stimulate the economy.
The truth is that they should have seen it coming. When I say “they”, I’m talking about the CEOs, CFOs and executive teams - the people in charge. The people who should have the company’s best interests at heart. But we are all human. It’s easy to get caught up in the temporary boom and pretend it is a permanent change in the economy and the gravy train will never end. So what if during the deepest economic downturn in recent memory, we had American’s savings go from 8% to 33%? Where did the money come from? Who cares? My competitors are all doing the same.
However, when Sundar Pichai, the CEO of Google, announces that thousands of employees are being laid off and he takes full responsibility, there should be consequences. Maybe a few tens of millions of dollars in a pay cut could clear up his vision.