Welcome to the Revenge of The Nerds Economy

Many of you will remember Revenge of The Nerds, that fine classic movie where a bunch of, well, nerds take over the campus of Adams college by outsmarting and outwitting the jocks. For people who work in computers of a certain age and disposition – say, a late 30s geek from a western culture like myself who might have fit the nerd stereotype at various points in his early upbringing – the movie was somewhat influential. It told a story that, translated into economist-speak, equates to “intellectual capital may someday trump other kinds in terms of economic value creation.”

As it seems to have turned out, we are now in the Revenge of The Nerds economy. Despite 9%+ unemployment in the general economy, overall unemployment for software engineers is a tad below 5%. But this data, which is compelling enough, does not tell the entire story.

The bigger story is around what kinds of things are seeing investment. There is talk of another bubble right now in technical startups. If you are a technology based startup that has reached “Ramen Profitability”, you will almost certainly attract capital. Things are now even getting to the point where we are seeing companies that lack profits going to the IPO market (think Pandora and Groupon) – something that has been out of vogue since at least 2001. One could make the case that we will soon cross the line where it is easier to get a startup funded than it is to get a jumbo mortgage.

If you work in tech, there is a good chance you are feeling this, at least if you are currently employed and working for an employer that has some level of visibility. If you work for Google, Facebook, or some other high tech company, you likely do not have to work that hard to get a new job offer. Notwithstanding the cruel irony that people who are unemployed are often being systemically discriminated against, the job market for really good, currently employed software developers is as robust has it has been in 10 years.

So if the nerds are all right, mostly, what about the jocks? What occupations did they end up in? While some of them may have made it to the NFL as professional football players, most others end up in spilling into the general job market. While the stereotype is that jocks end up in menial jobs, construction, or manufacturing; research being hard to find, my own experience of knowing several such folk points to careers tending to be sales, low-end finance (think mortgages), real estate, and personal training. Given, a sample size of a couple dozen doesn’t really prove anything. However, if one did extrapolate, one could come to a conjecture that while “jocks” for lack of a better word, do not do worse then average now, the nerd/jock investment and employment dynamic has changed.

Why the change? Now that simply taking big leveraged risks with a big pile of money isn’t in fashion (i.e., as it was before the global financial crisis), you need advantages from superior intellectual capital in order to sustain a higher than mean return on investment. Why not in fashion? From 2003-2008, it was accepted that financial engineering was the way to riches. If you only structured your collateralized debt obligation in the correct way, you could invest at 40x leverage and still retain a AAA rating on your debt. Financial engineering gave you higher profits under such a regime than traditional “engineering engineering” could provide. So money flowed into CDS structures and away from the nerdy parts of the economy that invents things.

So now we find ourselves in an economy where capital flocks to things like Pandora, Groupon, Facebook, Linkedin, and other things that, at their core, have interesting algorithms inside them. And we have a situation where if you are a developer capable of writing an interesting and valuable algorithm – or helping a company scale out a system that leverages one of these inventions, you are in high demand.

Good thing for the nerds. What this means for everyone else remains to be seen.

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Comments

  • rich  On June 15, 2011 at 10:49 pm

    Glad to see you’re blogging again!
    -R

  • Daniel Sniderman  On June 15, 2011 at 11:38 pm

    One thing I would add – we were hit by a big tech recession in 2001-2002 – and a lot of people who didn’t belong in the industry left and didn’t return. At the same time – college enrollment in Computer Science has declined dramatically. So demand has been decent will there are issues on the supply side…

  • Aaron Erickson  On June 15, 2011 at 11:45 pm

    I do agree with that, Dan. The dot-com era was one of the only eras where tech was almost sexy.

  • Elena Yatzeck  On June 16, 2011 at 12:39 am

    The whole concussion thing is a drag for the people who make it to the NFL anyway. Very unfortunate. But awesome to see a new post from you!

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