Illustration: Eniola Odetunde/Axios
Every 15 years or so, it seems, the U.S. economy rolls into a ditch — and the tech industry pulls something remarkable out of its labs. Here we are again!
State of play: Silicon Valley’s favorite bank has failed, while its top firms continue to lay off hordes of workers — but at the same time, industry leaders foresee vast new growth spurred by AI.
Be smart: If that split-screen snapshot looks confusing, remember that tech’s story is one long boom-bust cycle. Each new era gets built upon the ruins of the past.
Look closely at that story and you’ll see that all of tech’s great transitions have unfolded in times of financial turmoil.
- Experts and economists agree that a key factor behind today’s industry woes has been the Federal Reserve’s inflation-countering interest-rate hikes.
- But if you think today’s 4.5% rates are high, turn your clock back to when the IBM PC was introduced in the summer of 1981: In that grim season, the Fed was charging borrowers around 17%.
The first great platform leap of modern times — from mainframes and minicomputers to the personal computers we still use now — occurred as Fed chair Paul Volcker induced the sickeningly painful recession of 1981-82.
- The rates Volcker set back then, duplicated today, would flatten 2023’s overextended banks and businesses.
Tech’s next leap, onto the global internet in the early ’90s, happened as the U.S. struggled to restart its business engines after another recession — and Bill Clinton captured the White House under the banner, “It’s the economy, stupid.”
- The industry’s third great shift in the late 2000s — as the iPhone’s arrival heralded the smartphone era — took place in a landscape of business failure that we now call the Great Recession.
What’s happening: Today, tech’s optimists are casting ChatGPT and the new generation of AI it symbolizes as the industry’s latest platform shift.
- They predict that, as in previous eras of business downturn and tech transition, innovation will slip the U.S. economic machine back into gear.
Yes, but: Tech’s previous leaps have involved breakthroughs that promised to empower individuals, streamline businesses and summon entire new waves of startups into being.
- For now, today’s generative AI projects like ChatGPT, the new Bing, and image-creation tools like Midjourney and DALL-E require vast computing resources and cost a fortune to run.
- That means they’re being developed directly by tech’s dominant giant firms, or with their partnership and support.
Between the lines: Those big firms are the same ones that right now are laying off droves of employees.
- Some of those cuts involve specialists in ethics, diversity and privacy who would otherwise have a chance to guide the early development of the technology in socially beneficial ways.
The big picture: Although tech has become an increasingly central economic player over the decades, the economy remains a much bigger machine, with retail, real estate, energy, health care and other sectors following their own dynamics.
- Tech’s innovations have changed how we work and play, but their impact on productivity remains a contested question among economists.
- The jury’s still out on whether the generative AI boom will change the world as dramatically as proponents believe.