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What’s so bad about inflation?

In contrast to the tiny costs of inflation, the costs of unemployment are enormous

I'm recovered from the flu, but it turns out it was that dirty rotten swine thing, after all. There I was, four days in bed, feeling lousy. At least I was able to use my laptop, even if nobody wanted to come near me. I can't imagine why. The flu has helped, however, with the diet I have been on since I left the Monetary Policy Committee of the Bank of England. Down 17 pounds and counting.

But to business. In his speech to the Tory conference, David Cameron discussed what he felt was the way out of the economic crisis. His three options were as follows, and I quote:

“Option one: we can just default on the debt. Not pay it. Other countries have done that in the past. But I don't think anyone in this country wants to go down that road.

“Option two: we could encourage inflation, which would wipe out the value of the debt, making it easier to pay off. But that's not just an economic disaster, it's a social disaster, too. It doesn't just wipe out debts, it wipes out people's hard-earned savings.

“So we have the third option - for me, the only option. We must pay down this deficit. The longer we leave it, the worse it will be for all of us."

So let's take a look at each of these. I like one; see if you can guess which.

Inflation's attractions

Option one. Cameron is telling the markets that he has even considered the possibility of defaulting on the debt. He is more economically naive than I thought. All he had to say, on this issue, was that such a possibility would be unthinkable in a century of Thursdays and then change the subject.

Option three. This is a non-starter, as I have said many times. Lesson number one in a deep recession is you don't cut public spending until you are into the boom phase. John Maynard Keynes taught us that. The consequence of cutting too soon is that you drive the economy into a depression, with the attendant threats of rapidly rising unemployment, social disorder, rising poverty, falling living standards and even soup kitchens. Such proposals could push the British economy into a spiral of decline that would be almost impossible to reverse for a generation. In a deep recession, the choice is "the government does it, or nobody does it". It is public spending versus no spending. You don't worry about paying off the debt when you are at war: you have other priorities. Win the war first. Nope, not that one.

So that brings us to option two. Thanks, Dave, this looks a pretty darn good idea to me, even if you disagree. Just reflate the debt away. Moderate inflation would lift people out of negative housing equity. A few years of inflation of roughly 5 per cent or so would be very attractive right now. Maintain the monetary stimulus and if necessary expand it further for the foreseeable future, and keep the fiscal stimulus going. Too much is better than too little. And, for goodness' sake, don't start paying back the public debt until we are well out of recession.

What would be so bad about a bit of inflation? Would it really be a social or an economic disaster? Actually, probably neither. Some possibility of inflation some time in the future isn't worth worrying about. As for Cameron's point about savings, savers always have the option of protecting themselves from inflation by investing in index-linked products, such as index-linked saving certificates from National Savings & Investments. In any case, if we had lots of inflation we would know what to do about it. The Bank of England would tighten monetary policy. The chances of runaway inflation right now are essentially nil.

In contrast to the tiny costs of inflation, the costs of unemployment are enormous, not least because of the lost output involved. Unemployment is a stressful life event that makes people unhappy. It increases susceptibility to illness, mental stress and loss of self-esteem, leading to depression and reduced life expectancy. The unemployed appear to have a higher propensity to commit suicide. As unemployment rates increase, crime rates tend to rise, ­especially property crime.

Increases in the unemployment rate lower the happiness of everyone, not just the unemployed. The fear of becoming unemployed lowers a person's subjective well-being. Unemployment is especially harmful to the young, as it causes permanent scars rather than temporary blemishes. In normal times, a 1 percentage point increase in unemployment lowers people's well-being twice as much as a 1 percentage point increase in inflation. The so-called misery index is nearer to two than to one. Today, a 1 percentage point increase in inflation would raise, not lower, our well-being.

It also has to be said, the whole intellectual basis for an inflation target is dead: set a target, establish an independent central bank with a committee of economists whose sole purpose is to target inflation only and economic nirvana will be guaranteed. It didn't turn out that way for the Bank of England. Various members of the MPC are still burbling on about the importance of the inflation target. Sorry, but that whole idea is dead and buried. It failed. It didn't deliver the promised stability, far from it. It unloaded on us the worst financial shock in a hundred years. The Great Moderation was just luck.

Unemployment matters most

Now is the time to consider getting rid of the inflation target altogether, or at least changing it. The last thing we want is for the MPC to start raising rates or reversing quantitative easing any time soon. Now is the time to consider explicitly including unemployment in the MPC's mandate. Another option would be to switch to the all-items retail price index, which includes mortgage payments, and stands at -1.4 per cent compared with 1.1 per cent for the consumer price index, which the Bank of England has to target currently. Both would have the effect of keeping monetary policy loose for longer.

The legislation does allow for the government, if the national interest demands it, to give instructions to the Bank on interest rates for a limited period. These feel like "extreme circumstances" to me. Demand away, Alistair.

To repeat: unemployment matters more than inflation, in this world rather than in the made-up dreamworld most economists live in. Time to keep the man on the Clapham omnibus in a job. So, Dave, I vote for option two, please.

David Blanchflower is professor of economics at Dartmouth College, New Hampshire, and at the University of Stirling
Watch an interview with Prof Blanchflower on YouTube

David Blanchflower is economics editor of the New Statesman and professor of economics at Dartmouth College, New Hampshire

This article first appeared in the 19 October 2009 issue of the New Statesman, The Strange Death of Labour England

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This Ada Lovelace Day, let’s celebrate women in tech while confronting its sexist culture

In an industry where men hold most of the jobs and write most of the code, celebrating women's contributions on one day a year isn't enough. 

Ada Lovelace wrote the world’s first computer program. In the 1840s Charles Babbage, now known as the “father of the computer”, designed (though never built) the “Analytical Engine”, a machine which could accurately and reproducibly calculate the answers to maths problems. While translating an article by an Italian mathematician about the machine, Lovelace included a written algorithm for which would allow the engine to calculate a sequence of Bernoulli numbers.

Around 170 years later, Whitney Wolfe, one of the founders of dating app Tinder, was allegedly forced to resign from the company. According to a lawsuit she later filed against the app and its parent company, she had her co-founder title removed because, the male founders argued, it would look “slutty”, and because “Facebook and Snapchat don’t have girl founders. It just makes it look like Tinder was some accident". (They settled out of court.)

Today, 13 October, is Ada Lovelace day – an international celebration of inspirational women in science, technology, engineering and mathematics (STEM). It’s lucky we have this day of remembrance, because, as Wolfe’s story demonstrates, we also spend a lot of time forgetting and sidelining women in tech. In the wash of pale male founders of the tech giants that rule the industry,we don't often think about the women that shaped its foundations: Judith Estrin, one of the designers of TCP/IP, for example, or Radia Perlman, inventor of the spanning-tree protocol. Both inventions sound complicated, and they are – they’re some of the vital building blocks that allow the internet to function. 

And yet David Streitfield, a Pulitzer-prize winning journalist, someow felt it accurate to write in 2012: “Men invented the internet. And not just any men. Men with pocket protectors. Men who idolised Mr Spock and cried when Steve Jobs died.”

Perhaps we forget about tech's founding women because the needle has swung so far into the other direction. A huge proportion – perhaps even 90 per cent - of the world’s code is written by men. At Google, women fill 17 per cent of technical roles. At Facebook, 15 per cent. Over 90 per cent of the code respositories on Github, an online service used throughout the industry, are owned by men. Yet it's also hard to believe that this erasure of women's role in tech is completely accidental. As Elissa Shevinsky writes in the introduction to a collection of essays on gender in tech, Lean Out: “This myth of the nerdy male founder has been perpetuated by men who found this story favourable."

Does it matter? It’s hard to believe that it doesn’t. Our society is increasingly defined and delineated by code and the things it builds. Small slip-ups, like the lack of a period tracker on the original Apple Watch, or fitness trackers too big for some women’s wrists, gesture to the fact that these technologies are built by male-dominated teams, for a male audience.

In Lean Out, one essay written by a Twitter-based “start-up dinosaur” (don’t ask) explains how dangerous it is to allow one small segment of society to built the future for the rest of us:

If you let someone else build tomorrow, tomorrow will belong to someone else. They will build a better tomorrow for everyone like them… For tomorrow to be for everyone, everyone needs to be the one [sic] that build it.

So where did all the women go? How did we get from a rash of female inventors to a situation where the major female presence at an Apple iPhone launch is a model’s face projected onto a screen and photoshopped into a smile by a male demonstrator? 

Photo: Apple.

The toxic culture of many tech workplaces could be a cause or an effect of the lack of women in the industry, but it certainly can’t make make it easy to stay. Behaviours range from the ignorant - Martha Lane-Fox, founder of, often asked “what happens if you get pregnant?” at investors' meetings - to the much more sinister. An essay in Lean Out by Katy Levinson details her experiences of sexual harassment while working in tech: 

I have had interviewers attempt to solicit sexual favors from me mid-interview and discuss in significant detail precisely what they would like to do. All of these things have happened either in Silicon Valley working in tech, in an educational institution to get me there, or in a technical internship.

Others featured in the book joined in with the low-level sexism and racism  of their male colleagues in order to "fit in" and deflect negative attention. Erica Joy writes that while working in IT at the University of Alaska as the only woman (and only black person) on her team, she laughed at colleagues' "terribly racist and sexist jokes" and "co-opted their negative attitudes”. 

The casual culture and allegedly meritocratic hierarchies of tech companies may actually be encouraging this discriminatory atmosphere. HR and the strict reporting procedures of large corporates at least give those suffering from discrimination a place to go. A casual office environment can discourage reporting or calling out prejudiced humour or remarks. Brook Shelley, a woman who transitioned while working in tech, notes: "No one wants to be the office mother". So instead, you join in and hope for the best. 

And, of course, there's no reason why people working in tech would have fewer issues with discrimination than those in other industries. A childhood spent as a "nerd" can also spawn its own brand of misogyny - Katherine Cross writes in Lean Out that “to many of these men [working in these fields] is all too easy to subconciously confound women who say ‘this is sexist’ with the young girls who said… ‘You’re gross and a creep and I’ll never date you'". During GamerGate, Anita Sarkeesian was often called a "prom queen" by trolls. 

When I spoke to Alexa Clay, entrepreneur and co-author of the Misfit Economy, she confirmed that there's a strange, low-lurking sexism in the start-up economy: “They have all very open and free, but underneath it there's still something really patriarchal.” Start-ups, after all, are a culture which celebrates risk-taking, something which women are societally discouraged from doing. As Clay says, 

“Men are allowed to fail in tech. You have these young guys who these old guys adopt and mentor. If his app doesn’t work, the mentor just shrugs it off. I would not be able ot get away with that, and I think women and minorities aren't allowed to take the same amount of risks, particularly in these communities. If you fail, no one's saying that's fine.

The conclusion of Lean Out, and of women in tech I have spoken to, isn’t that more women, over time, will enter these industries and seamlessly integrate – it’s that tech culture needs to change, or its lack of diversity will become even more severe. Shevinsky writes:

The reason why we don't have more women in tech is not because of a lack of STEM education. It's because too many high profile and influential individuals and subcultures within the tech industry have ignored or outright mistreated women applicants and employees. To be succinct—the problem isn't women, it's tech culture.

Software engineer Kate Heddleston has a wonderful and chilling metaphor about the way we treat women in STEM. Women are, she writes, the “canary in the coal mine”. If one dies, surely you should take that as a sign that the mine is uninhabitable – that there’s something toxic in the air. “Instead, the industry is looking at the canary, wondering why it can’t breathe, saying ‘Lean in, canary, lean in!’. When one canary dies they get a new one because getting more canaries is how you fix the lack of canaries, right? Except the problem is that there isn't enough oxygen in the coal mine, not that there are too few canaries.” We need more women in STEM, and, I’d argue, in tech in particular, but we need to make sure the air is breatheable first. 

Barbara Speed is a technology and digital culture writer at the New Statesman and a staff writer at CityMetric.