Self-deluding optimism over the recession

It is really bugging me the folk who don't seem to realise there's a recession slowly gathering momentum. It's like people fishing on the beach after a tsunami warning has been issued. A couple of waves lap up and they go "oh good that's over". NO IT ISN"T.

Our IT industry still seems awash in what I'd call self-deluding optimism. This New Age claptrap about "believe it and make it so" and "power of positive thinking", and the New Business claptrap about "unlimited thinking" and "turning any problem into an opportunity", THEY DON'T WORK. Not in the face of the biggest recession in eighty years.

This was really a question on LinkedIn recently: "Is it me or is the ICT industry actually almost out of the recession?"
So was this: "Why is everyone sobbing about the financial crisis?"

Don't these people read? What's the weather like on their planet?

From the latest Economist

"Optimism may be fashionable, but there are plenty of reasons to fear it is premature... the IMF’s new World Economic Outlook makes clear, each of these characteristics points to a deep recession and a weak recovery. "

And another one, March 21st, this time from the less authorative Newsweek but written by Kenneth Rogoff, Harvard Professor of Economics and Public Policy

The U.S. administration, for example, is now predicting that growth will renew in the latter part of this year and continue at a brisk pace of 4 percent for several years thereafter. Is this a fact-based forecast or wishful thinking?

A careful look at the international evidence on severe banking crises suggests a far more cautious assessment. The recessions that follow in the wake of big financial crises tend to last far longer than normal downturns, and to cause considerably more damage. If the United States follows the norm of recent crises, as it has until now, output may take four years to return to its pre-crisis level. Unemployment will continue to rise for three more years, reaching 11–12 percent in 2011.

The news on housing prices and the stock market is arguably a little better, mainly because there has been so much damage already. The typical fall in inflation-adjusted stock prices is 55 percent, a benchmark the U.S. has more or less achieved. The typical decline in housing prices is 36 percent. According to some indicators, inflation-adjusted housing prices have already fallen roughly 30 percent. The bad news is that these down price cycles typically last for several years. So, even if the big hit on stocks and house prices has come already, the bottom might not be reached until the end of 2010.

This recession has barely begun to roll. The waves of layoffs have not yet begun to bite the retail sector, nor to give the housing sector yet another kick in the guts. They will, which triggers another wave in turn.

The world's governments have to work out where to find a couple of trillion dollars in bail-out money, and how to service the associated debt. The inflation monster has not roared yet, in fact the talk is of deflation. If governments print the two trillion instead of using real money then expect inflation to take off soon enough.

I can't imagine what signs would make one think IT is not going down with the rest of the ship.

And yet one of those LinkedIn threads said "this is the time to invest resources (hire new ones if needed) and push strategies on things that will take the team/company to the next level. Otherwise, you may be behind the 8-Ball and behind the competitions, when the economy does come back (and it will)". I think it is way too easy to get gung-ho about other people's money right now. The "opportunities" are all higher risk and the funds, while cheaper, are scarce. If you believe now is the time for companies to invest in new ventures, I hope you are putting your own money there too: you should be mortgaging the house to buy lots of property. Bet you're not.

Those organisations who are well cashed up and a smaller number of organisations with a high risk appetite will indeed be taking advantage of the current situation. But gaily sailing into the Board meeting with proposals for new IT projects may not be a great career move in most companies in 2009, or 2010.

Timing is everything. Most pundits agree this recession - even if it does not slide into full Depression as the protectionists seem hell-bent on taking it - will be a long one. Over-reaching when the economy has even further to fall or remains flat would hurt.

in general now is the time to pull heads in, cut costs, trim fat (if there is any left), and get the job done. It is also time to batten down the hatches: make sure we can do the job with even less than we get now, that we have fallback plans for deep staff and funding cuts, just in case.

Yes we can also prepare plans for expansion and innovation. We might even use them if our organisation fits the profile I described above. For most of us, it is time to understand the party is over and to sober up. As I said somewhere else recently: none of us are old enough to remember but I saw the look in my grand-parents' eyes.

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