Weekend Economists Enumerate the Wealth of Nations, February 10-12, 2012

[Demeter]

15. Ballmer (MICROSOFT) Expects "A Fundamental Economic Reset” CONGRESSIONAL TESTIMONY

http://articles.businessinsider.com/2009-02-07/tech/30066819_1_pc-sales-global-economy-innovation/2

"...In my view, what we now have will be a fundamental economic reset. The economy is going to have to re-establish itself at a level of spending that reflects the real value of underlying assets before we can all start growing again at a healthy rate. This may not be the thing that people really want to hear, but it's certainly what we're planning on, and it's the truth on which we're basing sort of our model, if you will, at Microsoft.

In our opinion, in order to reach the reset point, three things need to happen.

First, the economy must be deleveraged. Private debt as a percentage of GDP has to be reduced. Restoring health to the nation's financial system is a fundamental part of this. Just for historical note, not only during the Depression, but actually in 1837 and in 1873 we had similar style resets in the economy. We actually have at least three historic periods that we can study in which similar phenomenon occurred. I think it was 1873 where even the state of Florida filed for Bankruptcy. So, we need to be thoughtful about being students I think of the history.

Second, confidence must be restored. The stimulus package, in my opinion, is vital. It will provide a cushion as we reach the reset point and it will help restart our economic engine. (Applause.) I certainly want to applaud the steps that the House has taken under the speaker's leadership to quickly pass a strong stimulus package and to help shore up our financial institutions.

Third, America really has to return to growth that's built on innovation and productivity, rather than leverage and private debt. That must happen. The good news is that the U.S. economy is still the world leader in innovation. Our universities are the envy of the rest of the world. The American workforce is the best on the planet, and U.S. companies continue to drive technological progress in almost every industry. But the time has come when we need to renew our innovation capacity. We went back and studied what innovation companies did during the time of the Great Depression. One company that stands out, if you study the Depression, is RCA. Now, the fact that RCA is not around today, this has nothing to do with their behavior during the Depression. There's probably good learnings for a lot of technology companies in that. But during the time of the Depression, RCA was probably the most broad-based R&D-centric company in America. And while it cut costs certainly to survive the Depression, it never retreated from its commitment to core research and development. And as a result, after the Depression had ended, it really led and the U.S. led TV technology developments for the next 25 years. That was good for RCA; it was good for America.

In my view, American companies aren't going to be able to weather this economic downturn just by cutting costs either. You may have heard that Microsoft, our company has decided that we need to reduce 5,000 positions. What you may not know is that at the same time we've decided we'll also create two to three thousand new jobs -- mostly in the US -- as we continue to push into new areas that require investment. In addition, despite the tough economy -- I might even say because of the tough economy -- our company will continue to invest more than US$9 billion a year in R&D, because we think it's that R&D spending that will cause us to remain strong...

Read more: http://articles.businessinsider.com/2009-02-07/tech/30066819_1_pc-sales-global-economy-innovation/2#ixzz1m483K0C6