In 1980 and 1990 we had high inflation, rising interest rates and a flight from stocks. Then a dramatic recovery. How can we imitate those decades now?
Success then came principally from new technology plateaus, along with the availability of early-stage funding for them.
The 1980’s began with computers being basically huge machines. At home and in the office people were still typing, dictating if there was a secretary, none of this very productive.
Venture capital for start-ups was the provenance of the very wealthy, like the Whitneys, and a rare financial firm like Citibank.
But in 1980 the Labor Department issued a memorandum to employee pension fund trustees. Not only may they invest in private companies, it said, but also it was suggested that 15 percent of the billions of dollars in pension funds should not be in public companies but private ones.
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Ergo, the growth of so-called “alternative investments” like real estate trusts; but also, venture capital funds that could invest in the companies developing the smaller personal computers and other new technologies.
Good-bye to typewriters, Wite-Out and secretaries taking dictation.
At the end of the 1980’s, this rapidly expanding economy was hit with a blow to real estate investing from a tax change and a tightening of the money supply from the Federal Reserve.
Good news came in the early 1990’s, when another technology plateau was reached by the internet and cell phones, incredible productivity enhancers. The 1990’s were a roaring success, until at the end too much money went into start-ups that failed, taking the publicly held ones and their underwriters with them.
In 2003, I was invited to a Senator John Kerry roundtable discussion, on how to get capital into young businesses. He headed the Small Business and Entrepreneurship Committee. I advised that the IRS code increase the amount of losses in small companies that investors could deduct from their earned income, which is better for them than from capital gains, and Congress agreed.
I also made the case for bringing back small and medium-sized “going public” investment firms, which we still need.
In 2002, investor confidence was enhanced by stricter reporting requirements for public companies in the Sarbanes-Oxley Act. Now the SEC is providing that piece of the recovery puzzle by making SPAC’s (Special Purpose Acquisition Corporations) as revealing as a regular public offering. But will more protections be provided for crypto currencies, what we need now?
In the first decade of this century, there were new technologies like “the Cloud” and all was going well until in 2008 the subprime mortgage market failed and took early stage investing and the economy with it.
Confidence in public markets is necessary, so that early investors can exit their investments and redeploy their profits.
Now in 2022, only four companies have gone public, reminiscent of 1979, when not one company had an initial public offering.
As for a technology plateau today, there are more than just Elon Musk exploring the Moon and Mars. There is Zuckerberg’s Meta plans. A GlaxoSmithKline immunotherapy drug tested by Memorial Sloan Kettering just cured all eighteen patients with fourth stage rectal cancer. This month one of the many small companies chasing nuclear fusion reported getting closer to completion — bye-bye energy problems.
I am over-the-moon by such developments and rest my case that a recession is not inevitable.
Jeremy Wiesen is a West Palm Beach resident, retired as a professor of entrepreneurship from New York University’s Stern School of Business.