The party is over: the end of the millennial consumer subsidy | Technology
is the headline of the news that the author of WTM News has collected this article. Stay tuned to WTM News to stay up to date with the latest news on this topic. We ask you to follow us on social networks.
“All the printing houses in Germany are printing banknotes for the Reichsbank, working 24 hours a day. You are all paying your employees twice a day, so that they can run to the stores and buy something before that money becomes worthless a few hours later. And now we get to the point where the framework is simply not accepted.” This is how Arthur RG Solmssen portrayed in A princess in Berlin the ravages of the hyperinflation that devastated Germany between 1923 and 1924 and that left the birth of the Nazi party among its consequences. On November 1, 1923, in Germany, a pound of bread cost 3,000 million marks, a pound of meat 36,000 million, and a glass of beer 4,000 million. On November 20, 1923, the exchange rate on the black market was 11,000,000,000,000 marks to the dollar. The change in the official market was only 4,200,000,000,000 marks. The banknotes had lost so much of their value that they were used as wallpaper. The price on the postage stamps affixed to bank letters canceling life savings accounts was higher than their balance. To give us an idea, that year stamps of up to 10,000 million marks were issued that could be paid with notes of 5,000 million, 50,000 million, 500,000 million, five billion or 50 trillion.
Inflation is corrosive. It takes away not only the wealth of families, but also the altruistic ideals of any society that has been created, until then, civilized. It makes expectations about the future disappear and, even if stability is restored, its effects last longer than is desirable. The coincidence with the year of German hyperinflation makes its presence in this already exhausted and exhausting 2022 especially ominous.
The technological sector, intensive in energy and bulk capital, was not going to be oblivious to the debacle that our economies are suffering. To explain it in very simple terms, a classic recipe to reduce inflation is to increase interest rates, something that the US Federal Reserve and the European Central Bank (created, by the way, with the core idea of controlling the inflation). This measure makes money no longer cheap, it “withdraws” from the market and moves to more conservative positions. With negative returns and free money, tech mutual funds have happily spent their resources and watered the billion-dollar tech sector that startup they had no reason to return. Investors expected that 95% of the projects would fail, but with the remaining 5% they would make up for losses and make a profit. If we give an already overheated market such as the technological one another turn of the pan with the digital El Dorado generated by Covid, we have a fragile market that any gust of wind can blow away.
Y Combinator, the incubator of startup Silicon Valley’s most famous, which has given birth to companies of the stature of Airbnb, Coinbase, Stripe Dropbox, or Twitch, dropped the bomb in a mail that he sent to his “founders” warning them that “things are not looking good”. He advises them, what coming from your partner is more of an order, that they prepare for the worst, cutting expenses and improving their cash flow, accepting the money they are given in the remaining rounds without getting fussy because they will be the last and leaving of promises, making their companies profitable once and for all. In case they had any doubts, Y Combinator reminds them that the responsibility for the viability of their companies falls on them and that their future prestige in fundraising will depend on how they behave in this situation. Sequoia Capital brought its founders together via Zoom to address this “tipping point” where “the cost of capital has risen dramatically” and the Craft Ventures Fund hosted another meeting, advising its investees that if they had a choice, better to grow slowly than ask for money. The message is clear: it is time to stop hiring, to save, to be productive. The one who keeps burning money will not be in the photo.
The effects of the money drought are already clearly visible. First, in the companies of the sector. Substack, after failing to complete a round of financing (it tried to raise between 75 and 100 million dollars without success, after having melted the 86 million dollars it had raised in the three previous rounds), has laid off 14% of its staff . Musk, shortly before he stood up on Twitter, announced that he was considering laying off 10,000 Tesla workers in the wake of a “super bad feeling” he had about the economy. A visionary our Elon. Even Mark Zuckerberg joins the chorus of the crisis. In an internal meeting, Zuckerberg warned his workers that Meta was facing one of the “worst recessions we’ve seen in recent memory,” which would bring cuts in new hires and incentives, as well as tighter performance checks. “Some of you may decide that Meta is not your place and this auto-selection is fine with me,” Zuckerberg said in the video call. “Realistically, there are probably a lot of people in the company who shouldn’t be here,” he concluded.
This scarcity and need for profitability, along with the impact on unemployment, is accompanied by what Derek Thompson, a journalist for TheAtlantic, has called the end of the millennial consumer subsidy. To give us an idea of the magnitude of the subsidy, an American user who in 2019 would have used Casper, Peloton, WeWork, DoorDash, Lyft, Blue Apron, and Postmates, would have dealt with eight companies with combined losses of around 15,000 million dollars in just one year. That means that if the services were provided at their real price or ceased to be free by removing the hormones from the venture capital funds, millennials would see their way of life become so expensive that they could not afford it in the terms current. More wood to runaway inflation and more frustration, in short, for a charred society. Let us hope that we do not continue to copy, year by year, the events of the 20th century.
You can follow EL PAÍS TECHNOLOGY in Facebook Y Twitter or sign up here to receive our weekly newsletter.
Subscribe to continue reading
read without limits