Keynesian lesson for the et righties

The iPhone Stimulus

Are you, or is someone you know, a gadget freak? If so, you doubtless know that Wednesday was iPhone 5 day, the day Apple unveiled its latest way for people to avoid actually speaking to or even looking at whoever they’re with.


So is the new phone as insanely great as Apple says? Hey, I’ll leave stuff like that to David Pogue. What I’m interested in, instead, are suggestions that the unveiling of the iPhone 5 might provide a significant boost to the U.S. economy, adding measurably to economic growth over the next quarter or two.

Do you find this plausible? If so, I have news for you: you are, whether you know it or not, a Keynesian — and you have implicitly accepted the case that the government should spend more, not less, in a depressed economy.

Before I get there, let’s talk about where the buzz is coming from.

A recent research note from JPMorgan argued that the new iPhone might add between a quarter- and a half-percentage point to G.D.P. growth in the last quarter of 2012. How so? First, the report argued that Apple was likely to sell a lot of phones in a short period of time. Second, it noted that although iPhones are manufactured overseas, most of the price you pay when you buy one is domestic value-added — retailing and wholesaling, advertising and profits — all of which counts as part of G.D.P. Finally, it took some plausible guesses about the price of each phone and the number of phones sold, and used those guesses to make an estimate of the impact on G.D.P.

It’s all pretty straightforward. But the implications are wider than most people realize.

The crucial thing to understand here is that these likely short-run benefits from the new phone have almost nothing to do with how good it is — with how much it improves the quality of buyers’ lives or their productivity. Such effects will kick in only over the longer run. Instead, the reason JPMorgan believes that the iPhone 5 will boost the economy right away is simply that it will induce people to spend more.

And to believe that more spending will provide an economic boost, you have to believe — as you should — that demand, not supply, is what’s holding the economy back. We don’t have high unemployment because Americans don’t want to work, and we don’t have high unemployment because workers lack the right skills. Instead, willing and able workers can’t find jobs because employers can’t sell enough to justify hiring them. And the solution is to find some way to increase overall spending so that the nation can get back to work.

So where can more spending come from? Businesses are sitting on lots of cash but, for the most part, have seen little reason to do a lot of investment. Why expand your capacity when you don’t have enough sales to make full use of the capacity you already have? And because businesses aren’t spending a lot, incomes are low, so consumer demand is low, which perpetuates those low sales.

Yet depressions do end, eventually, even without government policies to get the economy out of this trap. Why? Long ago, John Maynard Keynes suggested that the answer was “use, decay, and obsolescence”: even in a depressed economy, at some point businesses will start replacing equipment, either because the stuff they have has worn out, or because much better stuff has come along; and, once they start doing that, the economy perks up. Sure enough, that’s what Apple is doing. It’s bringing on the obsolescence. Good.

But why suffer through years of depressed output and high unemployment while waiting for enough obsolescence to accumulate? Why not have the government step in and spend more, say on education and infrastructure, to help the economy through its rough patch? Don’t say that the government can’t add to total spending, or that government spending can’t create jobs. If you believe that the iPhone 5 can give the economy a lift, you’ve already conceded both that the total amount of spending in the economy isn’t a fixed number and that more spending is what we need. And there’s no reason this spending has to be private.

Yet far from using public spending to support the economy in its time of trouble, our political system — driven by a combination of ideology, exaggerated deficit fears and Republican obstructionism — has moved to make the depression worse. Yes, unemployment benefits and food stamps are up, because so many more people are in need; but government employment has plunged, as has public investment.

Now, despite all this, we will eventually recover. Over time there will be more equipment that needs replacing, more iPhone-like innovations that boost spending, and, in the long run, we will exit this economic trap. But, as Keynes famously pointed out in another context, in the long run we are all dead. To borrow a phrase from myself, why not end this depression now?


http://www.nytimes.com/2012/09/14/opinion/krugman-the-iphone-stimulus.html?_r=1

 

hahaha.. ridiculous. We all know there is a lack of demand. The crucial difference this stupid author doesn't understand is simple. PRIVATE sector demand doesn't cost anything to the taxpayer. PUBLIC sector demand is ON the taxpayer. What is so hard to understand?

Apple makes its own money, it pays its own employees, it produces and sells its own products. Individuals purchase these products with their own money, sales increase, Apple hires more workers, rinse and repeat. Apple adds value to the economy any way you slice it.

Govt hires workers, they get paid with tax revenue (or borrowed money, or printed money), they take value from the economy. The govt is taking money from productive people and reallocating it as they see fit. Go ahead and tell me "well they build infrastructure, it's an investment" that's great, it still was a loss to the taxpayer. Why not let the private sector (the people with CAPITAL) build infrastructure, no cost to anyone but them.. of which they are then entitled to profit from.

We are already running record deficits and borrowing 40c on the dollar, that costs us in INTEREST. And if you print money which goes into circulation, you ARE destroying the purchasing power of the $. Simply increasing spending through the govt, is NOT actually increasing demand, it is just increasing govt spending, AT A COST. Now if people have more of their own money to spend.. they WILL. And it will not cost all of us, just them. If spending could just solve all problems why don't we just print a million bucks for everyone?

 

In fact, pigs are considered to be the most intelligent of farm animals. Therefore, it would be appropriate for you to change your username to, say, "chicken-without-head."

 

go fuck yourself ^^

 

You do know that altering posts is no longer tolerated by the great and all knowing Magnus? I'll spare you the embarrassment of using the complain button.

 

the idiot author just proved supply side theory.
Innovative supply creates demand.

lower taxes - stimulate new products and services.


The iphone 5 is new innovative supply... it creates the demand..
its the type of product lower taxes could encourage.


you leftist dolts have it all wrong.

the iphone is innovative supply.

--
the govt is trying to create demand by pushing on a string.

there is a lack of demand for old financial services and products because there was an over supply of them... in part due to improper govt incentives and fraud.

so it is natural that demand will contract in those areas.

lower taxes allow business to take changes on new products and services like the Iphone or so.

 

Well Piggy, it seems you didn't quite understand the NYTimes article nor do you understand Keynes. Spending public money on wasting assets for the sole purpose of creating a temporary boost in demand is not a very good idea.

Instead, what is being suggested, and what Keynes would approve of, is investing public dollars, even if those dollars have to be borrowed, in the private sector so as to create jobs building infrastructure (which includes for example things like high speed rail, developing energy alternatives, improving education, and constructing public facilities of all kinds.) This in turn will generate increased tax revenue and create demand in the private sector by putting folks to work on worthwhile projects, putting money in their pockets, and getting them off the unemployment/public assistance roles. The results of these projects can pay healthy dividends for years to come.

 

any economics in your background? you aint getting it. the iphone is just a symbol. it could be anything. lets call it an ibridge.
the initial demand can be consumers or government. the government doesnt build anything. it manages projects.
the government orders an ibridge. since it doesnt build anything it has to place an order with a private contractor who has employees. that contractor has to buy supplies from suppliers who have employees. as all these employees make money they create demand for other goods and services. this all has a multiplyer effect. if it is strong enough it can be self reinforcing.
so keynesian government spending can create demand and increase the velocity of money.

 

Well said, and of course all that works so much better when lenders are basically paying the government to "borrow" their money (like now).

 

the ironic thing is there are actually righties on et arguing that someone like ron paul, who has promised to cut a trillion dollars in his first year,would spur job growth.