Time to see past the Steve Jobs delusion

Whatever Apple throws at its customers, they come back more evangelical than ever

It's hardly surprising there was a great deal of hype around the launch of the Apple iPhone 3G S. After all, it ushered in a brave new ingredient to the tried-and-tested iPhone recipe: the ability to cut and paste. The 'S' in 3G S apparently stands for 'speed'. Presumably that's because you can cut and paste, fast.

But if Apple made no discernible improvements to an iPhone or iPod, it would still have its army of loyal fans singing their praises, such is the blind loyalty that they feel for the Apple brand.

When it comes to Apple, buyers of its products are often more than mere customers. They are usually brand ambassadors too: talking passionately about their latest gadget or gizmo to anyone who will listen, or flooding the internet with positive blogs and comments about Apple and its products. Such is the success of Apple's marketing.

Apple's brand is so strong that it hardly needs to spend money on advertising campaigns. It invites a lot of people to a big convention centre to make its announcements, and it lets the world's press, bloggers and its own customers tell its story.

Rotten Apple?

Apple believes its products are always the best, its strategy always spot on, its rivals fools. That strategy has worked for the company in recent years, with only a few bumps in the road to give it pause for thought.

A while back it was forced to settle federal charges in the US that it broke its promise to offer customers free technical support. It was found by the Federal Trade Commission to have been charging customers $35 each time they needed help, despite having promised those customers guaranteed free access to technical support staff for as long as they owned their products. Apple declined to comment on the settlement.

Apple again showed just how much it valued the loyalty of its customers, this time iPhone early adopters, when it dropped the price of the first iPhone from $599 to $399 within weeks of it going on sale.

Those who had paid the $599 price tag were understandably livid about the fact they appeared to have paid the price of simply being first in line to buy the device. Apple eventually did a major U-turn, offering rebates to many of those customers but even then only offering a $100 credit to many, which had to be spent in an Apple Store or an Apple Online Store.

In an open letter to customers, Apple CEO Steve Jobs apologised, but found it hard to do so unconditionally. He told disgruntled early adopters they would realise if they had been "In technology for 30+ years", like him, that the "technology road is bumpy".

"This is life in the technology lane," Jobs said.

Apple has been acting in a similarly discourteous manner over faulty power adapters. It was forced to settle a class action in May 2008 which alleged that Apple had covered up wide-spread problems with MacBook and MacBookPro adapters, and thereby forced yet more disgruntled users to have to buy replacements at the full cost of between $25 and $79. A similar suit, again related to faulty power adapters, was brought in May this year in Federal Court in California and is ongoing.

It's a shame that consumers must turn to the courts for their concerns to be recognised. It makes it even more surprising that the firm's loyal followers appear to remain just as loyal despite its apparent disregard for customers who feel they have a genuine complaint.

Just last month, Apple was asked to amend its terms and conditions by the UK's Office of Fair Trading. It affects those who buy from Apple or iTunes stores or download software from the Web. Following discussions with the OFT, Apple has agreed to revise its standard conditions to ensure, for instance, that they no longer exclude liability for faulty or mis-described goods, and do not potentially allow changes to be made to products and prices after an agreement is made.

Apple, needless to say, didn't comment.

Media malaise

Such is Apple's iconic image that it appears able to turn seasoned commentators into cogs in the Apple marketing machine. The technology blogger Matt Asay's article a while back is just one example. "The Mac owns the US. Windows owns the world," read his headline, to a story about desktop computer market share statistics.

The facts? Analyst firm Gartner had said that in the second quarter of 2008 Apple had just 8.5 per cent market share in the US, compared to Dell with 31.9 per cent and HP with 25.3 per cent.

Earlier this year, the Daily Telegraph's technology correspondent Matt Warman, discussing the launch of the iPhone 3G S in an article that was fairly damning of the new version, wrote: "That's the problem with Apple - it just keeps on pretending it always knows best. It's fine while the iPod remains the world's best MP3 player, but in the age of Google and its Android operating system, all phones are becoming computers. That may be an idea Apple invented, but the collective wisdom of the millions of people who use and develop applications for Google technology means that a battle is now on."

Warman makes some good points. But to suggest that Apple invented the idea of a phone that has computing capability is a big mistake. Although there is no industry standard definition of a 'smartphone', IBM and Bellsouth launched a phone with computing abilities way back in 1994, called Simon. It featured a mobile phone, a pager, a PDA, and a fax machine. It included a calendar, address book, world clock, calculator, note pad, email, and games. It even had a touch-screen, just like the iPhone.

The Simon was followed by similar 'smartphones' from Motorola, Sony and others. Fast-forward 13 years to 2007, and Apple launched the iPhone. Smartphone inventor? About as accurate as the infamous misquote that led to the urban myth that Al Gore claimed to have invented the Internet.

It's inarguable that the first iPhone ushered in major advances in usability over its smartphone predecessors, in a form factor that still attracts admiring glances. As Apple's British designer Jonathan Ive said at the launch, "It's not too shabby, is it?" Pleasing design has always been one of Apple's greatest strengths.

Yet in other areas it still trails the competition. The iPhone is not designed to enable third-party applications multi-tasking, limiting users to accessing only one application at a time. Palm, Research in Motion (makers of the Blackberry) and even Windows Mobile devices have the edge here.

As the Telegraph's Matt Warman argues, the iPhone 3G S did not move the game forward dramatically. But thanks to the passion of Apple users for the Apple experience, the iPhone is unlikely to be anything other than a continued success for Apple. It's one of those inexplicable truisms of the technology industry that whatever Apple throws at its customers, they come back even more evangelical than before. Why?

It's time to rethink the Jobs delusion.

Jason Stamper is the New Statesman technology correspondent and editor of Computer Business Review. This is the first in a series of weekly posts for The Staggers

Jason Stamper is editor of Computer Business Review

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We're racing towards another private debt crisis - so why did no one see it coming?

The Office for Budget Responsibility failed to foresee the rise in household debt. 

This is a call for a public inquiry on the current situation regarding private debt.

For almost a decade now, since 2007, we have been living a lie. And that lie is preparing to wreak havoc on our economy. If we do not create some kind of impartial forum to discuss what is actually happening, the results might well prove disastrous. 

The lie I am referring to is the idea that the financial crisis of 2008, and subsequent “Great Recession,” were caused by profligate government spending and subsequent public debt. The exact opposite is in fact the case. The crash happened because of dangerously high levels of private debt (a mortgage crisis specifically). And - this is the part we are not supposed to talk about—there is an inverse relation between public and private debt levels.

If the public sector reduces its debt, overall private sector debt goes up. That's what happened in the years leading up to 2008. Now austerity is making it happening again. And if we don't do something about it, the results will, inevitably, be another catastrophe.

The winners and losers of debt

These graphs show the relationship between public and private debt. They are both forecasts from the Office for Budget Responsibility, produced in 2015 and 2017. 

This is what the OBR was projecting what would happen around now back in 2015:

This year the OBR completely changed its forecast. This is how it now projects things are likely to turn out:

First, notice how both diagrams are symmetrical. What happens on top (that part of the economy that is in surplus) precisely mirrors what happens in the bottom (that part of the economy that is in deficit). This is called an “accounting identity.”

As in any ledger sheet, credits and debits have to match. The easiest way to understand this is to imagine there are just two actors, government, and the private sector. If the government borrows £100, and spends it, then the government has a debt of £100. But by spending, it has injected £100 more pounds into the private economy. In other words, -£100 for the government, +£100 for everyone else in the diagram. 

Similarly, if the government taxes someone for £100 , then the government is £100 richer but there’s £100 subtracted from the private economy (+£100 for government, -£100 for everybody else on the diagram).

So what implications does this kind of bookkeeping have for the overall economy? It means that if the government goes into surplus, then everyone else has to go into debt.

We tend to think of money as if it is a bunch of poker chips already lying around, but that’s not how it really works. Money has to be created. And money is created when banks make loans. Either the government borrows money and injects it into the economy, or private citizens borrow money from banks. Those banks don’t take the money from people’s savings or anywhere else, they just make it up. Anyone can write an IOU. But only banks are allowed to issue IOUs that the government will accept in payment for taxes. (In other words, there actually is a magic money tree. But only banks are allowed to use it.)

There are other factors. The UK has a huge trade deficit (blue), and that means the government (yellow) also has to run a deficit (print money, or more accurately, get banks to do it) to inject into the economy to pay for all those Chinese trainers, American iPads, and German cars. The total amount of money can also fluctuate. But the real point here is, the less the government is in debt, the more everyone else must be. Austerity measures will necessarily lead to rising levels of private debt. And this is exactly what has happened.

Now, if this seems to have very little to do with the way politicians talk about such matters, there's a simple reason: most politicians don’t actually know any of this. A recent survey showed 90 per cent of MPs don't even understand where money comes from (they think it's issued by the Royal Mint). In reality, debt is money. If no one owed anyone anything at all there would be no money and the economy would grind to a halt.

But of course debt has to be owed to someone. These charts show who owes what to whom.

The crisis in private debt

Bearing all this in mind, let's look at those diagrams again - keeping our eye particularly on the dark blue that represents household debt. In the first, 2015 version, the OBR duly noted that there was a substantial build-up of household debt in the years leading up to the crash of 2008. This is significant because it was the first time in British history that total household debts were higher than total household savings, and therefore the household sector itself was in deficit territory. (Corporations, at the same time, were raking in enormous profits.) But it also predicted this wouldn't happen again.

True, the OBR observed, austerity and the reduction of government deficits meant private debt levels would have to go up. However, the OBR economists insisted this wouldn't be a problem because the burden would fall not on households but on corporations. Business-friendly Tory policies would, they insisted, inspire a boom in corporate expansion, which would mean frenzied corporate borrowing (that huge red bulge below the line in the first diagram, which was supposed to eventually replace government deficits entirely). Ordinary households would have little or nothing to worry about.

This was total fantasy. No such frenzied boom took place.

In the second diagram, two years later, the OBR is forced to acknowledge this. Corporations are just raking in the profits and sitting on them. The household sector, on the other hand, is a rolling catastrophe. Austerity has meant falling wages, less government spending on social services (or anything else), and higher de facto taxes. This puts the squeeze on household budgets and people are forced to borrow. As a result, not only are households in overall deficit for the second time in British history, the situation is actually worse than it was in the years leading up to 2008.

And remember: it was a mortgage crisis that set off the 2008 crash, which almost destroyed the world economy and plunged millions into penury. Not a crisis in public debt. A crisis in private debt.

An inquiry

In 2015, around the time the original OBR predictions came out, I wrote an essay in the Guardian predicting that austerity and budget-balancing would create a disastrous crisis in private debt. Now it's so clearly, unmistakably, happening that even the OBR cannot deny it.

I believe the time has come for there be a public investigation - a formal public inquiry, in fact - into how this could be allowed to happen. After the 2008 crash, at least the economists in Treasury and the Bank of England could plausibly claim they hadn't completely understood the relation between private debt and financial instability. Now they simply have no excuse.

What on earth is an institution called the “Office for Budget Responsibility” credulously imagining corporate borrowing binges in order to suggest the government will balance the budget to no ill effects? How responsible is that? Even the second chart is extremely odd. Up to 2017, the top and bottom of the diagram are exact mirrors of one another, as they ought to be. However, in the projected future after 2017, the section below the line is much smaller than the section above, apparently seriously understating the amount both of future government, and future private, debt. In other words, the numbers don't add up.

The OBR told the New Statesman ​that it was not aware of any errors in its 2015 forecast for corporate sector net lending, and that the forecast was based on the available data. It said the forecast for business investment has been revised down because of the uncertainty created by Brexit. 

Still, if the “Office of Budget Responsibility” was true to its name, it should be sounding off the alarm bells right about now. So far all we've got is one mention of private debt and a mild warning about the rise of personal debt from the Bank of England, which did not however connect the problem to austerity, and one fairly strong statement from a maverick columnist in the Daily Mail. Otherwise, silence. 

The only plausible explanation is that institutions like the Treasury, OBR, and to a degree as well the Bank of England can't, by definition, warn against the dangers of austerity, however alarming the situation, because they have been set up the way they have in order to justify austerity. It's important to emphasise that most professional economists have never supported Conservative policies in this regard. The policy was adopted because it was convenient to politicians; institutions were set up in order to support it; economists were hired in order to come up with arguments for austerity, rather than to judge whether it would be a good idea. At present, this situation has led us to the brink of disaster.

The last time there was a financial crash, the Queen famously asked: why was no one able to foresee this? We now have the tools. Perhaps the most important task for a public inquiry will be to finally ask: what is the real purpose of the institutions that are supposed to foresee such matters, to what degree have they been politicised, and what would it take to turn them back into institutions that can at least inform us if we're staring into the lights of an oncoming train?