Jeff Duntemann's Contrapositive Diary Rotating Header Image

February 20th, 2023:

Why All the Layoffs?

Really. Why so many, and why now? I’ve been sniffing around looking for insights. The insights have been thin. I have some thoughts that may seem a little blue-sky. Let me put a few of them in front of you to see what y’all think.

  1. Elon Musk did it. Well, not exactly. Elon Musk started it, by buying Twitter and owning it completely. The first thing you do after buying the meat is cut the fat, which he proceeded to do, bigtime. What came next was a classic instance of monkey see, monkey do. Once Musk showed the tech world that it was possible, the tech world, perhaps terrified of their employees before, began to do the same. Once corporate management saw that they wouldn’t be hung from the lampposts, they began cutting their own (considerable) fat.
  2. Higher interest rates did it. Elon Musk started it, but now that the Fed is raising interest rates to bring money-supply inflation down, the cost of cash is going up fast. Cash flow matters more than profitability in some respects. You can be profitable on paper and not have enough cash on hand to make payroll. Shrink payroll, and your cash flow requirements ease up a little. I’ve lived this issue. I know that it’s true. But the core problem here is actually my next insight:
  3. Tech firms hired all the heads they could afford, rather than all the heads they needed. Heads are easier to afford when interest rates are hovering close to zero, as they have for quite a few years now. Once again, Elon Musk put this problem up in lights. He said that all over Twitter there were managers who managed managers who managed…nothing. Thousands of people working at Twitter had absolutely nothing to do. Musk realized that Twitter would work just fine with 7,500 fewer people on the payroll. Predictions that Twitter would implode without all those idle bodies never came true. That was back in November. When January arrived and Twitter was working just fine, the rest of the tech world dove into that admittedly chilly pond. Yes, but why did they overhire? Maybe this:
  4. Tech firms were afraid that in a tight job market, they might not be able to hire the people they needed. So they hired more than they needed, to keep other tech firms from snapping all the talent up first. I can almost understand this, given how much airtime was given to the supposedly desperate search for workers over the COVID era. (I had my doubts about its truth back then. I still do.) So in a sense there was an employment bubble in tech…and Elon Musk popped it.

Those are my insights. The chattering classes, who now (with devalued bluechecks) loathe Musk down to the last person, haven’t tried to blame him for it, though I think they could make a good case if they wanted to. Musk won’t care. He’s laughing at them, as well he should. I’ve heard rumors that if Starlink rolls out as designed, Musk will have his talent design an iPhone workalike capable of connecting to Starlink. That would be one helluva game-changer. The guy can land rocket boosters on a barge and use them again and again. Don’t be too quick to decide what other bubbles he can’t possibly pop.