~ I sat down and talked with Tim Draper last week. I’m busy writing about and editing together the interview now, but I really like the way he put this. (I had just asked him whether the current economic situation had more to do with group psychology or real economics…)It’s both. If you have a bad quarter, you have a bad quarter and that’s it. You build back up for the next quarter. But if you have a bad quarter and the press thinks that’s a really bad thing, they create a domino effect where people are thinking they should keep their money in their mattress. Where people start to think ‘we better not take that trip,’ ‘we better not buy that car’ — if they go through the ‘better nots,’ that pulls money out of the economy. Then the company that had a bad quarter, where they may have rebounded, has an even worse quarter the next quarter because more of these people have pulled back and they’re not buying. And then the stock market goes down even further because people don’t believe this company will do very well the next quarter, and in some cases the company goes out of business after a few quarters. Then the press makes an even bigger deal out of it, and people have to pull back even more, and that’s what’s going on now. It’s a constant cycle. When they did the New Deal, and they said “You have nothing to fear but fear itself,” at that point, that was the case. And we are getting to that point now.
But let me tell you something else. It’s about “the deal.” I was trying to explain this to my daughter Eleanor, and I told her “If you make a deal with somebody, you’re both better off.” So you can break it all down. Break the entire economy down into deals: number of deals, frequency of deals, better deals, et cetera. But the important thing is you’re both better off: if I make a deal with you to buy your camera, you make a decision that it’s a good sale for you and I make the decision that it’s a good buy for me because I need that camera. We’re both better off. If we make a deal on a business — say I invest in your company, we’re both better off: I own some stock in what I thought was a good opportunity, and you sold some and got some cash because you felt that that was the best opportunity for you. And if you take that to the extreme — Microsoft, Apple — these companies have each made a lot of deals. [points to my laptop on the desk] That computer was a deal you made with Steve Jobs and Ron Johnson, and all of the Apple employees. And they all benefited from you buying that computer. And you benefited from buying that computer, and the Apple Store benefited, and all the suppliers to Apple benefited. Everybody benefits when a deal gets done. More deals, more benefit — more benefit, more deals. It’s a virtuous cycle.
But if you decide that you’re not going to buy that computer, because you’re afraid — because of what the press just wrote — you’re helping to proliferate the problem. If you buy it anyway, and other people do, then you’re helping to proliferate a better economy. And it’s not just buying decisions — it’s decisions on business deals, on partnerships, on networks, on all those things. All of those deals get tightened up when people start thinking “How long do I have to survive?” And that’s what’s going on.
