Deflation in the tech industry

Bitcoin fans, take note.

Deflation is bad.

This is not, normally, a controversial thing to say. The idea that low and stable inflation is a good thing is one of the few maxims of economics which is widely held.

Except if you like Bitcoin.

My piece last month looking at how Japan and Bitcoin are both hamstrung by their deflationary economies was meant to highlight the similarity between the two, but it also brought out a difference: whereas Japan is trying to change their economy, Bitcoin fans are trying to change economics.

By far the most common example that they cite is that of the technology sector. That's unsurprising, given people with a lot invested in Bitcoin (both figuratively and literally) tend to be pretty techie. So I'm not being unfair by pointing to Brent McCulloch's comment from last week as typical (I've cleared up the formatting a bit):

Great Article! Your arguments about deflation highlight the exact reason I never buy technology. The whole sector is deflationary!

For example, why would anyone spend their money on an iPad2 now? If they just hold onto their money a bit longer and wait for the iPad3 to come out, the same amount of money will have so much more purchasing power! Why even spend it on that iPad3 at that point, we know the iPad4 is just a year away, right? If they save their money for just 12 more months, for the iPad4, it’ll have so much more effective purchasing power.

This is why no one ever buys technology, their currency is deflating relative to technological products. Don't believe the sales figures from these tech companies, it's all smoke and mirrors I tell you! Smoke and mirrors!

Biting sarcasm.

But the thing is, deflation – or a phenomenon like it – is actually pretty evident in Apple's sales figures. This chart, via Benedict Evans, shows the cyclicality in Apple's sales:

What you're seeing is the company making an ever greater proportion of its sales in the fourth quarter. Not only is that the quarter where the most products are released (the iPad 4 was released in Q4 2012, iPhone 5 one quarter earlier but suffered crippling supply problems until Q4 2012), it's also the one where sales can't be delayed any further. No matter how sure you are that Apple's going to bring out an iPad 5 soon, if you need to buy your dad a present for Christmas, you need to buy it by Christmas.

In other words, the effect of deflation in the market for Apple's products is to bunch all of the sales into the quarter when new products are released and time-sensitive purchases are made.

But there's an even better example of deflation to pick on in the IT industry. In fact, it's one of the most famous business case studies of all time.

In 1981, the Osborne Computer Corporation launched the Osborne 1. It was, by all accounts, a great piece of kit for the time: 64k of RAM, a 5-inch screen and two whole floppy-disk drives, all for just $1,795. What's more, it came packaged in with a collection of software worth almost as much as the entire computer. Sales were fantastic: the company grew from two employees to 3,000 in just a year, and made revenue of $73m.

Then, in early 1983, the "Osborne Executive" was announced. With a 7-inch screen, almost twice the RAM, and even more bundled software, the Osborne 1 was clearly obsolete overnight, and orders fell through the floor. Despite price cuts, unsold inventory piled up, and, by 1983, Osborne declared bankruptcy. The Osborne Executive was never delivered.

That story has come to be known as the Osborne Effect, illustrating to business leaders worldwide the perils of pre-announcing replacements to their own products. But it's also a very literal demonstration of the effects of deflation.

What Osborne announced was a rapid deflation in the cost of an Osborne computer. "Soon," customers were told, "you will be able to get vastly more computer for your money." And customers responded in the only sensible way: they stopped buying Osborne 1s. Starved of cash-flow, the company couldn't even live long enough to release the product which they had touted, and so everyone was worse off.

Deflation does hit the tech sector. Apple may not be going bankrupt as people wait til the iPad 5, but it's losing more and more sales in the early quarters of each year; and other companies have suffered exactly that fate. Bitcoin fans, take note: your favourite counterexample is my favourite example.

Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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How the Lib Dems learned to love all-women shortlists

Yes, the sitting Lib Dem MPs are mostly white, middle-aged middle class men. But the party's not taking any chances. 

I can’t tell you who’ll be the Lib Dem candidate in Southport on 8 June, but I do know one thing about them. As they’re replacing a sitting Lib Dem (John Pugh is retiring) - they’ll be female.

The same is true in many of our top 20 target seats, including places like Lewes (Kelly-Marie Blundell), Yeovil (Daisy Benson), Thornbury and Yate (Clare Young), and Sutton and Cheam (Amna Ahmad). There was air punching in Lib Dem offices all over the country on Tuesday when it was announced Jo Swinson was standing again in East Dunbartonshire.

And while every current Lib Dem constituency MP will get showered with love and attention in the campaign, one will get rather more attention than most - it’s no coincidence that Tim Farron’s first stop of the campaign was in Richmond Park, standing side by side with Sarah Olney.

How so?

Because the party membership took a long look at itself after the 2015 election - and a rather longer look at the eight white, middle-aged middle class men (sorry chaps) who now formed the Parliamentary party and said - "we’ve really got to sort this out".

And so after decades of prevarication, we put a policy in place to deliberately increase the diversity of candidates.

Quietly, over the last two years, the Liberal Democrats have been putting candidates into place in key target constituencies . There were more than 300 in total before this week’s general election call, and many of them have been there for a year or more. And they’ve been selected under new procedures adopted at Lib Dem Spring Conference in 2016, designed to deliberately promote the diversity of candidates in winnable seats

This includes mandating all-women shortlists when selecting candidates who are replacing sitting MPs, similar rules in our strongest electoral regions. In our top 10 per cent of constituencies, there is a requirement that at least two candidates are shortlisted from underrepresented groups on every list. We became the first party to reserve spaces on the shortlists of winnable seats for underrepresented candidates including women, BAME, LGBT+ and disabled candidates

It’s not going to be perfect - the hugely welcome return of Lib Dem grandees like Vince Cable, Ed Davey and Julian Huppert to their old stomping grounds will strengthen the party but not our gender imbalance. But excluding those former MPs coming back to the fray, every top 20 target constituency bar one has to date selected a female candidate.

Equality (together with liberty and community) is one of the three key values framed in the preamble to the Lib Dem constitution. It’s a relief that after this election, the Liberal Democratic party in the Commons will reflect that aspiration rather better than it has done in the past.

Richard Morris blogs at A View From Ham Common, which was named Best New Blog at the 2011 Lib Dem Conference

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