[pesenti]

So does that mean we can finally stop listening to Cringely altogether? I am an IBM employee and I can tell you a lot of my fellow IBMers had a really bad week-end because of his ridiculous claims.

For context see previous discussion on the 110000 employee layoff that won't happen: https://news.ycombinator.com/item?id=8944637

[DannyBee]

I don't think today's IBM ever planned to layoff 110k at once.

Lay off 10k here, 10k there, call one a workforce restructuring, another "an innovation related rebalancing plan", blah blah blah.

It seems highly unlikely to me that IBM would just up and lay off 110k workers. Ignoring any other issues, the political blowback and PR blowback they'd get from politicians would be huge right now. IBM doesn't want to get in the middle of the current job-related wranglings.

When they laid off 60k in 1993, you can see it didn't really happen all at once then either.

http://www.nytimes.com/1993/02/16/business/first-layoffs-see...

(February)

and then http://query.nytimes.com/gst/fullpage.html?res=980CEEDF163EF...

(July)

[bring1]

their stockprice would make a big jump if they could manage to lay off 110k people.

I think it would be a good thing, to streamline their operation.

[jacquesm]

You do realize you're talking about 110k people losing their income?

Including dependents (averaging 2.4 / wage earner) that means this would affect ~ 250K people plus those laid off so 350K people.

Funny definition of a 'good thing', there is more to life than stocks.

[stavrianos]

I inferred a "for IBM" on the back of that sentence. Obviously, shitty for those laid off.

[31reasons]

IBM is not a live entity it is composed of people.

[anonbanker]

International Business Machines is a stack of paper registered out of Delaware. The fact that people are employed by this stack of paper does not mean the stack of paper has a soul.

to prove this, note that their stock was up on the rumor of 110k layoffs. Other stacks of paper without souls caught wind of this stack of paper reorganizing, and promptly bought shares.

[outside2344]

I hear what you are saying but if it means than 330k people still with IBM can keep their jobs (as opposed to the whole thing going under) it could be a good thing.

[tptacek]

Hundreds of thousands of other people, like teachers and firefighters, depend on returns from companies like IBM to fund their retirements. If IBM can't profitably retain employees, holding onto them anyways comes at the expense of all the shareholders, not just the ones with cigars and monocles.

[stainednapkin]

Yes, "good" can mean many things depending on what the person saying it believes.

[swatow]

It would be a good thing because following the principal of maximizing profits is what is most socially beneficial, in the absence of externalities. And jobs are not an externality.

You have only calculated one side of the equation. You haven't considered how investors would have reinvested that money, and the jobs that this would have created. We can and should develop a theoretical framework that allows us to predict both sides of the equation. Such a framework exists and is called general equilibrium theory, which predicts that profit maximizing companies maximize social utility.

[dragonwriter]

> It would be a good thing because following the principal of maximizing profits is what is most socially beneficial, in the absence of externalities.

"In the absence of externalities" is a pretty enormous qualifications -- very few real world exchanges have no externalities.

> Such a framework exists and is called general equilibrium theory, which predicts that profit maximizing companies maximize social utility.

It predicts that, in a market with rational actors (as defined in the rational choice model -- utility maximizers with perfect information) and no externalities, a Pareto efficient equilibrium will be achieved. But Pareto efficiency means that for anyone to do better, someone would have to do worse. This is not the same as maximizing social utility (while it seems obvious that the point of maximum social utility must be a pareto efficient point, it is not clear that all pareto efficient points maximize social utility.)

And, of course, the conditions in which it makes those predictions (both the perfect information part of the rationality condition, and the no-externalities condition) don't reflect real world decisions very well.

[swatow]

Externalities don't invalidate the entire theory, they just mean that adjustments have to be made in the cases where there are externalities. Hence my emphasis on the fact that a person losing their job is not an externality.

I think you read my sentence as "(following the principal of maximizing profits is what is most socially beneficial) in the absence of externalities" where what I meant was "following the principal of (maximizing profits (in the absence of externalities)) is what is most socially beneficial".

Classical economics with optimal "Pigovian" taxes can be thought of as a first order approximation to reality.

Also, you can produce any Pareto efficient outcome from free markets + redistribution. In practice things aren't quite so simple since redistribution has some deadweight loss (e.g. some estimate that it costs $1.30 to the economy to raise $1.00 in taxes).

EDIT: rewrote after a better understanding of the parent. EDIT 2: added more explanation.

[gjm11]

> general equilibrium theory, which predicts that profit maximizing companies maximize social utility

No, it doesn't. It can't, because "social utility" is visible to the market only through the proxy of willingness to pay. If you assume that the marginal utility of money is roughly proportional to 1/wealth (equivalently, that the utility you get from $X in wealth is roughly proportional to log(X)) then what the economy kinda maximizes is total weighted utility, where every person's utility is weighted in proportion to their wealth.

What markets give us (in theory, subject to various conditions) is a Pareto-efficient allocation of resources. And there's a theorem that says that (in theory, subject to various conditions) one can get any Pareto-efficient allocation of resources by doing a bunch of pure money-transfer operations and then letting the market do its thing.

That's nice, but it's only equivalent to saying that the market maximizes social utility if you regard those money-transfers as net-utility-neutral.

So, suppose I have $1M and you have $1K. Under the logarithmic-utility assumption above, an extra $10 for you gains you about as much extra happiness as an extra $10K for me. Consider a transaction in which I find 1000 people like you and pay you each $10 in exchange for what you consider to be $10 worth of inconvenience or pain; I have lost $10K but will be content if I get what I consider to be $10K worth of convenience or pleasure. So we have a possible transaction to which all participants are indifferent: I get a certain amount of happiness; 1000 people each get a roughly equivalent amount of unhappiness; and some money is transferred between us. If money transfers are net-utility-neutral, then by reversing those transfers we get another simpler "utility-neutral" transaction: X units of happiness for me, X units of unhappiness each for 1000 people. So long as they're 1000x poorer than me.

(Is that logarithmic-utility assumption reasonable? Not entirely. I think it's generally held that the marginal utility of wealth decreases faster than that, which would make the factor by which markets weight rich people's utility more important than poor people's utility greater. On the other hand: If we consider the wealth and utility of corporations as well as individuals, we might want to say that a corporation's utility doesn't drop off the way an individual's does. I haven't fully got my head around the right way to think about this so I'll stop at this point.)

[swatow]

There is another part of the theory which says that you get back the full set of Pareto optimal outcomes, by redistributing wealth (e.g. through taxes and welfare). Although see my comment above on the limits of wealth redistribution.

[jsprogrammer]

Does the framework predict monotonic utility growth? Does profit maximization occur instantaneously? Does it provide any guarantees on the timeframe required to experience maximal social utility?

[swatow]

>Does the framework predict monotonic utility growth?

I don't understand that question. I know the language of economics very well, but you're not using the terms in way that has an obvious meaning.

>Does profit maximization occur instantaneously?

Time is not really an issue in general equilibrium theory. E.g. the assumptions can be interpreted as saying that all companies make the decision that, at that time, given all information available, maximizes the expected value of the companies future time discounted dividends.

>Does it provide any guarantees on the timeframe required to experience maximal social utility?

Social utility is timeless. E.g. it can be restated to say that if you were to make a plan (where plan can include contingencies, e.g. if X happens, do Y) to maximize the (time discounted) total social welfare over all future time periods, then this plan would involve instructing all companies to maximize profit (in the sense of my answer above).

Basically, general equilibrium theory takes into account time, by adding dynamic programming. But this augmented theory is fundamentally the same as the theory when all consumption, production and trade occurs in one instant.

Minus all the econ jargon, I think you may have been hinting at the adjustment costs for the workers involved. There are indeed adjustment costs, but you can't speak about these costs in the same terms as the actual value of having a job. It's like comparing the cost of moving from one home to another, to losing one's home entirely.

[disordinary]

Trickle down effect doesn't work.

[tim333]

>their stockprice would make a big jump

Assuming they has 110k people doing nothing much important. I rather doubt that. IBM isn't that badly managed.

[jimbokun]

Just read Cringely's article, and think IBM's response takes just the right tone:

"IBM does not comment on rumors or speculation. However, we’ll make an exception when the speculation is stupid."

[jacquesm]

I think for an error of this magnitude some kind of apology would be in order. If he can't manage that he's lost a lot of credibility.

[timf]

I don't think he apologized the last two times he incorrectly made massive IBM layoff predictions:

http://www.pbs.org/cringely/pulpit/2007/pulpit_20070504_0020...

http://www.cringely.com/2012/04/18/not-your-fathers-ibm/

[hristov]

An error of what magnitude? IBM has not said exactly how many people will be laid off so we do not know what the magnitude of the error will be. Furthermore, they can certainly perform a 110K layoff by splitting it into multiple layoffs of thousands.

[jlukanta]

Response from IBM (via its Hong Kong office’s blog):

IBM does not comment on rumors or speculation. However, we’ll make an exception when the speculation is stupid. That’s the case here, where an industry gadfly is trying to make noise about how IBM is about to lay off 26 percent of its workforce. That’s over 100,000 people, which is totally ludicrous.

The fact is that IBM already announced, after 3Q earnings report, that the company would take a $600 million charge for restructuring. That’s several thousand people. Not 10,000, or 100,000. Moreover, IBM currently has job postings for more than 10,000 professionals worldwide, with more than half of them in growth areas such as cloud, analytics, security and mobile technologies. IBM’s new cloud leader, Senior Vice President Robert LeBlanc, told Fortune this week that IBM has plans to hire 1,000 cloud professionals.

A little perspective on IBM’s earnings is in order. The company still makes huge profit… $21 billion in operating pre-tax profit last year. And IBM’s “strategic imperatives” represent 27% ( and growing ) of the company’s total revenue… $25 billion in revenues, up 16 percent. We have high growth in a substantial portion of the portfolio, and those areas (CAMSS) have better-than-normal margins in areas that matter most to clients today — that’s the heart of the IBM transformation.

https://ibmhkblog.wordpress.com/

[egwor]

I don't feel that an apology cuts it anymore. We have so many sources of complete garbage. Imagine if this was what caused the significant drop of the IBM stock price (on the 21st)

Could we create a blacklist of sources that just aren't credible that we can just filter them out? e.g. Sky News. Perhaps negative weighting won't work; perhaps we should add a credibility weighting for respected works (web sites, or authors?)

[alexqgb]

That, most likely, was the point. A few months ago, Marc Adreessen credited the proliferation of this kind of market manipulation with the demise of the IPO. In his view, a company as well established as IBM can roll with punches like these, but (for reasons he describes in some detail) fledgeling companies can't. So they stay private until they're big enough to fend off the hedgies who make money by planting and fanning rumors like this.

The macro-problem is that companies are past the steep part of their growth curves before they're public, meaning that the benefits of economic growth flow largely to a small number of pre-IPO investors, and not the broad range of people whose 401(k) plans depend on growth in public markets.

Anyway, the entire interview if really good, and crap like this IBM rumor indicates that he's got a point.

http://www.vox.com/2014/6/26/5837638/the-ipo-is-dying-marc-a...

[aswanson]

That's interesting...Ben Horowitz said he suffered the same types of attacks from hedge funds; they'd spread a false rumor and because he was under some type of regulatory restriction, he couldn't correct the record unless he simultaneously updated all his institutional investors at the same time. He had to let the rumors ride out...and he only had a 90-100 million market cap. Somebody has to reign in these useless zero-sum fucks.

[draugadrotten]

> he couldn't correct the record unless he simultaneously updated all his institutional investors at the same time.

Hmm, conference calls, twitter, e-mail, web pages. And so on.

Is it really that difficult to issue an update which satisfies this legal requirement.

[aswanson]

Ben is not a dumb guy. I may be dulling out some of the details, but Im sure it was not that simple. Especially since it was about 7 years before the advent of twitter and involved SEC regulatory compliance.

[TheCondor]

An apology would restore credibility?

He's long had some sort of issue with IBM, I'm not sure what the source of it is, but regularly he publishes sensational articles about them with little or no basis in reality.

It this is far enough off base to warrant their response, I'd say the only way he'd gain any credibility is to list his sources and also make his investments clear. Is he buying puts on ibm?

What it looks like to me is that he heard a rumor about some cuts, not unusual and it sounds accurate. He elaborated it into a gigantic story of his creation. I expect better from Forbes.

[rjruizes]

As another IBM employee, I second that. His rumor caused panic for a lot of people.

[DannyBee]

His rumor is probably a multi-year plan rather than a one-time event.

[timf]

He said "By the end of February all 26 percent will be gone"

[DannyBee]

Ooh, missed that. Well, i'd bet he's wrong then. They'll be gone, just not by end of february.

[jacquesm]

Why are you so gleeful predicting doom for IBM?

[DannyBee]

I'm not predicting doom, i'm predicting that given their revenue is dropping for the past 11 quarters, and they can't they will cut the number of people to match the size of the market in most places, since they don't believe they can grow those markets.

They don't need 400k people if their future is providing cloud and cloud services, and not tons and tons of services contracts in every walk of life etc

Given they've taken restructuring charges between 600 million and 1.5 billion the past few years (which is about 7000-20000 people a year), why do you think they are going to magically reverse course?

[anonbanker]

Ever read IBM & The Holocaust [1]?

1. https://en.wikipedia.org/wiki/IBM_and_the_Holocaust

[johnward]

It's not the end of Feb yet so how do you know he isn't right? Also there is still a chance they plan to get rid of a large number but are avoiding the negative PR but staggering it.

[johnward]

I agree that it's unlikely. Even if they would want to get rid of that number of people it would take years. Plus you would think they would try to sell off a part of the business instead of laying off so many people and paying out severance.

[cones688]

I feel lucky like yourself of being in one of the divisions with massive growth.

I don't think people appreciate the size and breadth of IT IBM does, my "tiny" division of security if an independent company would be the 3rd biggest Security vendor in the market.

[sharkweek]

Saw the 100k number and thought "surely a typo" - only to learn that IBM has 400k+ employees

I had completely failed to realize just how massive IBM truly is as a company.

[lmg643]

I wonder if IBM would change their plan based on this leaking. If he really had this totally and completely wrong, then of course that is very irresponsible of him to say.

I don't see how you can stop listening to Cringely altogether though. They did abandon their $20/share EPS plan, which was a pretty epic change. The claims about global services having <50% college grads servicing IBM clients from india is also pretty damning for the company.

I would like to see IBM do well, it makes me angry to see big companies squander their history and abuse their people.

[krschultz]

Something like laying off 25% of the company is as drastic a measure as you can ever take other than closing up shop. If they were thinking about it, they were not thinking about it lightly. They certainly wouldn't change their mind just because the news leaked.

[DannyBee]

???? IBM is highly likely to have to lay off that many given the dryup of various markets.

When HP splits, it's likely they'll do the same.

This is just the way the services market is going.

As for whether they'd change, uh, people like their current CEO definitely change their mind based on the way the wind is blowing, and how much crap will hit the fan.

[krschultz]

Have you ever thought about the logistics that go into planning a layoff of 25% of the workforce? In order to get the list of who stays and who goes there is a lot of work involved. Many of the people involved in that work end up on the list to get laid off. It's terrible for morale. Once you've gone down that road, you aren't turning back just because someone found out 2 weeks ahead of time.

[Innistrad]

I am suspect that IBM would layoff so many at once even if it were their intention to reorganize. The negative press involved with such a huge record breaking layoff would just add insult to injury. It would be much more likely to be 100,000+ over a length of time.

Regardless I am sorry for the terror that this week must be based on this potentially unethical news article.

[wglb]

I stopped decades ago.

Note that his wikipedia article says he finally figured out "[A] new fact has now become painfully clear to me: you don't say you have the Ph.D. unless you really have the Ph.D."

Rather cringeworthy, I would say.

[yabatopia]

It would be naive to think IBM upper management didn't run simulations of letting go 100,000 employees in order to optimize profits or focus operations . Letting go not in the sense of actually firing people but also by selling divisions or splitting up the company. It doesn't mean they will do it (right away), but it's not as ridiculous as you would like it to be. One thing's for sure: more than 11 consecutive quarters revenue losses will have a drastic effect on the workforce of IBM.

[smackfu]

My guess is that he turns "possible strategic plan for 110k layoffs over the next five years starting in January 2015" into "110k layoffs in January 2015."