The Coming Tech Crash:
A 40 Year View From the Ground Up

If I had ever been here before
I would probably know just what to do
Don't you?
If I had ever been here before
On another time around the wheel
I would probably know just how to deal
With all of you

Déjà Vu, David Crosby, Crosby, Stills, Nash & Young

I have lived, worked, and survived through each of three collapses of the technology economy.  And, I am not the only commentator who sees the bad seeds of the next tech crash about to take root and spring forth with some very rotten fruit coming very soon.  Indeed, the coming crash of the technology sector has this reporter and many members of the digerati to say:  "It's like déjà vu all over again."

In each of the three previous crashes, conditions prior to the crash were very similar to our current apparently unique conditions.  In each case, over speculation in seemingly unique and fanciful financial instruments played a key role.  Ignorance of, and lack of concern for, the long term impact of these new instruments were ignored by both the major and minor players of the time.  Introduction of new and disruptive technologies preceded each crash.

In 1987, the new fangled fox in the henhouse was program trading.  Today, traders think nothing about telling their brokers or browsers to sell X stock if and whenever it reaches Y price.  In 1987, however, computerized program trading was the Bee's Knees of financial technology.  The ease and rapidity of trading caused an explosion in stock trading and values.  "Stock markets raced upward during the first half of 1987. By late August, the DJIA had gained 44 percent in a matter of seven months, stoking concerns of an asset bubble," is how The Federal Reserve History described the times.  All the warning signs of the impending crash were unfortunately ignored, all the while stock prices continued to climb, as their valuations became completely out of line with actual corporate value.

There were some warning signs of excesses that were similar to excesses at previous inflection points. Economic growth had slowed while inflation was rearing its head. The strong dollar was putting pressure on U.S. exports. The stock market and economy were diverging for the first time in the bull market, and, as a result, valuations climbed to excessive levels, with the overall market's price-earnings (P/E) ratio climbing above 20. Future estimates for earnings were trending lower, but stocks were unaffected.

He who lives by the program trading often dies by the program trading.  The unsustainable stock pricing gave way. Values dropped day by day.  And then, came "October 19, 1987, a day known as “Black Monday,” when the Dow Jones Industrial Average dropped 22.6 percent."

At the time, I was sales manager for the Japanese computer manufacturer and distributor, Fortis Information Systems, Inc.  Program trading was all the rage among the computer retailers and distributors who were Fortis customers.  Within days of the crash, many of these retailers and distributors were out of business — and I mean just plain gone and their accounts payable with them.  What destroyed these otherwise good business people — and what continues to be a recurring problem among many in the tech industry is thus: 

It has always been my observation from a pretty good vantage point that there was and still is a belief that technology has or will repeal The Immutable Law of Capitalism:  The Business Cycle of Supply and Demand. 

As for me, in the aftermath of the disruption of the company's customer base, and other international market fluctuations, friends from Tokyo informed me in the Spring of 1988, that the "Mother Company," back in Japan intends to pull the plug on Fortis Information Systems, Inc. by the end of that year  So it was time for me to move on ahead of that sad news.  For me, it was Sayonara to the computer biz, for awhile.

There is no more clear example of what Allan Greenspan once called "irrational exuberance" in the stock market than the conditions that led to the Crash of 2000.  Looking back, I believe the Crash of 2000 actually gave a shot in the arm to my fledgling computer consulting business.  All of a sudden many different people began to see that this Internet thing was much more than a passing fad.  We will let the Oracle, Wikipedia, explain why I say this:

The 1993 release of Mosaic and subsequent web browsers during the following years gave computer users access to the World Wide Web, popularizing use of the Internet.  Internet use increased as a result of the reduction of the "digital divide" and advances in connectivity, uses of the Internet, and computer education.  Between 1990 and 1997, the percentage of households in the United States owning computers increased from 15% to 35% as computer ownership progressed from a luxury to a necessity. This marked the shift to the Information Age, an economy based on information technology, and many new companies were founded.

As the 20^th century closed, the Internet and all its accompanying technologies and accoutrements, were in full rage.  I spent that last year of the 20^th century setting up and running a computerized and Internet connected research library for a middle school where I taught 6^th, 7^th and 8^th graders how to program webpages with HTML.  By Y2K, the Internet was The Thing!  And I was one of the local conductors of this runaway train.  Market forces really created my consulting business.  So away I went...

Of course, radios were a really huge market in the 1920s, both as products and as investments.  Big pools of money always attracts the foxes to the henhouse.  A group of shrewd players noticed this trend, and began to "pool their money together" to buy RCA Radio, Incorporated, stock.  Thus, driving up the price beyond any semblance of reality; but no one knew it was only a few buyers driving up the price arbitrarily.  Once the fraudsters felt fat and happy, they sold out.  Leaving many Mom and Pop investors holding an investment that was in a very short time worth nothing near what they emptied their life savings to buy.  Moreover, by 1929, everybody who wanted a radio already had one. Sound familiar?  It's been the same story since the Tulip Crash of the 17^th century.

The Dot-Com Bubble and the resulting crash of 2000 were predicated by similar events of the Tulip Crash and the 1929 stock market crash.  As Mark Twain is often quoted as saying, "History may not repeat itself. But it does rhyme."

The frenzy of buying internet-based stocks was overwhelming, as many internet-based companies, so-called dotcoms, were starting up. Because they were in a fairly high-growth industry, they needed funding. Funding came primarily from venture capitalist firms. Lenders and individual investors also followed later...

Instead of focusing on the fundamental company analysis involving the study of company revenue generation potential and business plans, industry analysis, market trend analysis, and P/E ratio, many investors focused on the wrong metrics such as traffic growth to their website propelled by the startup companies.

Another factor driving up the stock values in the late 1990s was deregulation of the telephone industry and the concomitant American Telecommunications Act of 1996.  Eventually a number of charlatans and hucksters were exposed.  The WorldCom Scandal and the Enron Scandal, became two of the biggest financial news stories as the new century unfolded.  These events led to a telecom bubble that grew and burst along with the Internet bubble.

On November 9, 2000, Pets.com, a much-hyped company that had backing from Amazon.com, went out of business only nine months after completing its IPO. By that time, most Internet stocks had declined in value by 75% from their highs, wiping out $1.755 trillion in value.

The rest is, as they say, History.

The Crash of 2008, most of us can recall vividly.  The 2008 crash was the direct result of over exuberance in the housing market.  Once again new financial instruments led to easy buying, over speculation, and then market collapse.

The 2008 financial crisis began with cheap credit and lax lending standards that fueled a housing bubble. When the bubble burst, the banks were left holding trillions of dollars of worthless investments in subprime mortgages. The Great Recession that followed cost many their jobs, their savings, and their homes.

The same dynamic as in our earlier crises was in full sway here, but on a world wide scale.

Predatory lending targeting low-income homebuyers, excessive risk-taking by global financial institutions, and the bursting of the United States housing bubble culminated in a "perfect storm." Mortgage-backed securities (MBS) tied to American real estate, as well as a vast web of derivatives linked to those MBS, collapsed in value. Financial institutions worldwide suffered severe damage, reaching a climax with the bankruptcy of Lehman Brothers on September 15, 2008, and a subsequent international banking crisis.

The 2008 crash was a problem of liquidity that affected many industries, not just tech.  By 2008, most of the overleveraged me-too players had been shaken out of the computer industry.  The remaining computer manufacturers were sacrificing quality as their margins shrank to near unprofitability.  From around 2004 up to the fallout of the 2008 crash, I had a de facto exclusive on the MPC line of computers.  MPC could not weather the cash and liquidity crunch that came in the market crash.  Plus, bad decision making on the part of MPC's management caused MPC to shut their doors right around Thanksgiving 2008.  And the 3 year warranties that MY CUSTOMERS had to come to rely on — well, they were worth about as much as MPC's AMEX stock became: Zero. 

Todays' news has glimmers and reflections of the financial crashes of past years.  One obvious similarity is the ongoing collapse of crypto currency markets.  If ever there was a financial instrument where the perceived value of the instrument far exceeds its actual value, it is crypto currencies.  Add to this, there is ongoing news of substantial fraud in some exchanges bringing down the value of all the crypto currency exchanges.  These are billions of dollars in real money lost by real people, many who cannot afford such losses.  I do not feel overly obligated to source this news. You can simply turn on the cable news channel of your choice to understand what is happening right now in crypto markets, and the impact the situation may have on any future liquidity crunch.

New technology always creates new economic and employment opportunities in the macro sense, while at the same time and in the micro sense, new tech disrupts and destroys much of the existing order until a new equilibrium is reached.  Historians call this process of change, Hegel's Dialectic.  In each of our past tech crashes, computers programmers replaced well heeled and established professionals in many different fields.  The new breed of code jockeys didn't really need to understand the underlying dynamics of any one industry.  The coders simply needed to insure that the computers that now ran the businesses produced industry specific results.

Recently, there has been drip by drip news about current and coming job losses in the tech industry.  What is unique about the coming layoffs is it is the class of coders that rode the Big Wave of Tech just a decade ago who are now facing layoffs.  The layoffs are the natural result of changing market conditions.  As one recruiter put it, "Even experienced developers aren't immune from the sting of redundancy."  There is now a market glut of computer programmers.  And the business world now needs for far fewer high priced code jockeys.

If you are not really a computer scientist and you wanted to spend 10 grand to take your English bachelor's degree to teach you how to write some JavaScript code, you're not going to have an easy time getting your $130K comp that you thought you could get six months ago.

The code jockeys are now entering the antithesis stage of Hegel's Dialectic.  Further reducing the need, and thus the cost of computer programming, is the emerging technology called "no-code low code" programming.  Forbes labeled this innovative technology the Number 1 new technology for 2023.

"Programming” as we understand it, will disappear in less than a decade (except the programming necessary to develop low-code and no-code platforms). Does this mean programming will completely disappear? No, but it does mean that huge parts of applications development will be on low-code/no-code platforms by “developers” with no formal programming training. It's impossible to overstate the impact of low-code/no-code platforms which enable non-programmers to develop applications. Your low-code team can develop applications faster and more cost-effectively than traditional requirements-driven programming-based application development.

Indeed, programmers will still be needed.  Just not as many code jockeys will be needed in the very near future.  Clearly, with the all of the already executed layoffs and with still more layoffs coming, there will be a disillusioned and much chastened pack of programmers flooding the labor market, all the while their price will continue to collapse, as their uniqueness wanes. 

I saw this situation coming long ago.  As my own son entered college, I tried to explain to him the inevitability of the robots writing most of the code.  The young man, unfortunately, had no paradigmatic framework to really evaluate what I was saying about the very near future of programming.  He lacked, as did others around him, my lifetime of operating in all the real and fad technologies that had come around since the 1970s.  So, although, I really won't be affected by the coming crash anymore than anyone else with no money in the stock market, it is my son and an anonymous army of likewise bright, young code jockeys, who most likely have never experienced real financial difficulty in their adult lives, will suffer the consequences of others' bad decision making, and their own short sightedness.

The crash of the tech economy as we know it is inevitable.  This industry reinvents itself very 10 years, as new gizmos come and go.  And the current crop of the once well to do, but maybe soon not so well off, will learn the hard way 2 essential facts of a life in modern technology. 

Lesson 1:  In Capitalism change is always inevitable.  That is what makes Capitalism both dynamic and dangerous; and therefore its processes of change must be understood and managed for the long term benefit of all.

Lesson 2:  Don't drink your own Kool-Aid and don't believe your own press.  Both tend to lead to one's own self-destruction.