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Saturday, September 22, 2012

Keynesian dreams dashed again

Paul Krugman on the idea that the iPhone 5 will save the US economy:
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. 
I'm clearly not a Keynesian, then.   Given all of the screen and software problems that are being reported, it's obvious that the latest iPhone is just another iPhone, less innovative and ultimately perhaps even less successful than its predecessors.  Considering that the first iPhone was released in 2007, I think it is perfectly safe to conclude that regardless of how insanely great the iPhone 5 may be, it will not save the US economy in 2013 any more than iPhone 1 saved it in 2008.
However, I want everyone to note the massive logical flaw in Krugman's piece.  Even if mass purchases of iPhones did lead to measurable economic growth - and that is impossible even if Apple sold every single phone it manufactured,  considering that the total 15 million unit order from Apple only amounts to $3 billion in a $15.6 trillion economy - that would not indicate implicit acceptance of the idea that the government should spend more in a depressed economy.
Suppose, for example, if instead of private consumers spending $3 billion on iPhones, the government spent $3 billion on purchasing and distributing pink plastic fake children's phones.  Would that lead to the same economic growth?  According to Krugman and the Neo-Keynesians, it would have exactly the same effect.  Those who actually understand the difference between an iPhone 5 and an unusable hunk of plastic know otherwise.

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46 Comments:

Anonymous Feh September 22, 2012 7:35 AM  

The definition of insanity: repeating the same error over and over again, each time expecting a different result.

Anonymous Faust September 22, 2012 7:52 AM  

This is the man who said, in all seriousness, that if the United States started preparing to defend the world from the aliens in Independence Day, that if we started building row after row of massive cannons simply to point them at the sky, it would provide a huge boost to the economy.

The man is insane. There is no other way to describe it. He is off his rocker.

Blogger LP 999/Eliza September 22, 2012 7:56 AM  

Why are Keynesians so obsessed with iphones anyways? Mass purchases of iphones or even those stupid ipads are not quantifiable examples of turnaround recovering economy.

Anonymous Kickass September 22, 2012 7:57 AM  

He is the Biden of economics.

Anonymous Rosalys September 22, 2012 8:01 AM  

Trillion - it's the new billion! I am convinced that most people have no concept of just how astronomical a number one trillion really is - and that's a problem.

Anonymous tdm September 22, 2012 8:02 AM  

"To borrow a phrase from myself, why not end this depression now?"

At least he knows we are in a depression. Perhaps he has read RGD?

Blogger Double Minded Man September 22, 2012 8:06 AM  

"Those who actually understand the difference between an unusable hunk of plastic and a fake pink toy phone know otherwise"

There, fixed that for ya!

Blogger Nate September 22, 2012 8:16 AM  

Wait...

This is some epic stupidity. Regardless of my personal opinion of it, or its users, the Iphone5 is a product that people want. There is real demand. Its not by any stretch... malinvestment. Its a company making a product that people want... and selling it to them.

That's what a good economy is.

So how does that... somehow justify the government giving trillions to bankers... or spending billions to help companies make products that people don't want?

Not only do the morons not understand debt... they are totally clueless about the concept of mal-investment.

Blogger Nate September 22, 2012 8:18 AM  

"Trillion - it's the new billion! I am convinced that most people have no concept of just how astronomical a number one trillion really is - and that's a problem."

The even a billion is to big a number for the vast majority of people. Its where we got the concept of a fiver. The numbers are so big... they don't mean any actual numbers... you read the word "trillion" or "billion" and all your brain really computes is "really big number".

Anonymous Godfrey September 22, 2012 8:35 AM  

Krugman reminds me of a weird kid I knew when I was eight. The kid lived in a self-created fantasy world within his own head. Nothing could drag him out. It was difficult to even communicate with him. For him, the fantasy was reality.




Anonymous Heh September 22, 2012 8:46 AM  

The even a billion is to big a number for the vast majority of people. Its where we got the concept of a fiver. The numbers are so big... they don't mean any actual numbers... you read the word "trillion" or "billion" and all your brain really computes is "really big number".

Most Americans use African Math - "one, two, three, many..."

Anonymous Rantor September 22, 2012 8:59 AM  

I think of the big numbers in terms of homes and travel. Millionaire two to three homes first class airfare and large boat; Multi-millionaire six homes, NetJets and yacht; Hundreds of millions twelve homes, own aircraft 100 foot yacht, Billionaire 24 homes, a european castle, own 747, 300+ foot yacht with submersibles and helicopters. Trillionaire, all of the above with 50 homes worldwide, own space shuttles and space station, could fund some 50 missions to Mars to build a private vacation home which you would never visit.

Blogger Fred September 22, 2012 9:03 AM  

Heard about the iOS upgrade for iphone4 that wipes out lots of functionality, including maps? Why would I get a 5 when they cant write good upgrades for their 'legacy' products.

Go Nexus 7.

Anonymous Idle Spectator September 22, 2012 9:05 AM  

This is the man who said, in all seriousness, that if the United States started preparing to defend the world from the aliens in Independence Day, that if we started building row after row of massive cannons simply to point them at the sky, it would provide a huge boost to the economy.

Everyone fucking knows the spaceships on Earth communicated with the mothership in orbit, and each spaceship had a shield around it preventing it from being destroyed. The only way to destroy the spaceships was to have Will Smith and Jeff Goldblum fly into space and dock with the mothership, hack into the alien computer system with a mac, and then disable the shield generators. Now that's what I call a close encounter.


As he is busy scheming his crazy schemes...

Paul Krugman's Laugh

Anonymous Idle Spectator September 22, 2012 9:07 AM  

That laugh is also what happened when the Apple board of directors found out it had won the lawsuit against Samsung.

Anonymous Idle Spectator September 22, 2012 9:23 AM  

Paul Krugman screaming in his corner office: FIRE THE FUCKING LASER!!!111!!1!!!

Independence Day: White House Destroyed

Blogger Nate September 22, 2012 9:48 AM  

"Most Americans use African Math - "one, two, three, many..."

Most everyone uses that math. but in reality people are fairly well aquainted with anything under a million. Once you hit one million though.. people's eyes glaze over.

Anonymous duckman September 22, 2012 9:48 AM  

Those who actually understand the difference between an iPhone 5 and an unusable hunk of plastic know otherwise.


Y'all are CERTAIN there is a real difference? We are talking about post-Jobs Apple, after all. I didn't realize you were such an optimist, Vox.

Anonymous Roundtine September 22, 2012 9:51 AM  

Also, if you spend $600 on a new iPhone, you won't spend $600 on a new winter jacket.

Unless he's proposing that the iPhone sales are on credit and/or people didn't cut back and save up the money to buy one (which includes delaying the purchase of another phone to wait for this one), i.e. that the iPhone is causing people's animal spirits to come alive and spend their savings that they would otherwise hoard, the real net effect of the iPhone is something closer to zero in the short-run of one quarter.

Blogger Nate September 22, 2012 10:01 AM  

you can't get to hung up on the apple part of this. Take out apple and just use... Generic Company A.

Company A makes widget that lots of people want.

Those people take money out of savings to buy it... or... instead of blowing it on some useless mal-investment trinket... they buy that widget.

Company A must hire more people and expand to meet demand.

Company B appears... with accessories for the widget... hiring more people.

This is how it works. In this way... the iphone benefits the economy.

This isn't a drop in the buck though.. its more like.. a bucket... in the pacific ocean.

Blogger James Dixon September 22, 2012 10:11 AM  

> Not only do the morons not understand debt... they are totally clueless about the concept of mal-investment.

They don't even understand the inherent losses in the processes of collecting taxes and allocating the spending.

Even if the government were more capable at allocating resources than individuals (which they aren't), they would have to overcome the cost of collection and allocation before they would break even.

Anonymous Cheddarman September 22, 2012 10:11 AM  

This guy also won a Noble Prize...proves Nobel Prizes are not what they used to be...

Anonymous Holla September 22, 2012 10:14 AM  

"Those who actually understand the difference between an iPhone 5 and an unusable hunk of plastic know otherwise."

Are you saying that Krugman is advocating for the government to buy $3 billion dollars worth of Warmouses™?

Blogger Nate September 22, 2012 10:27 AM  

what product have you brought to market Holla?

Anonymous DonReynolds September 22, 2012 10:33 AM  

Krudman is back at it again. More nonsense. More silly ideas that have little to do with economics at all.

An iPhone is another cell phone, like so many others. To say that the new iPhone will (by itself) stimulate the economy in a significant way does not mean that you are a Keynesian, nor does eating strawberries or watching Letterman on tv. But if you believe that Apple impacts the overall economy, you have managed to take Apple worship to a whole new level.

Lemmie guess.....if you think the multiplier applies to the iPhone in a significant way, then you also believe that a significant contraction will take place when they stop making the iPhone. There are close substitutes of all kinds, just ask Samsung.

Anonymous Holla September 22, 2012 10:41 AM  

Does making your mom come buckets count, Nate?

Anonymous Apeman September 22, 2012 10:41 AM  

Say's Law: Supply creates it own demand.


Krugman: The fact that a new supply of Iphones creates demand proves that Keynesian ideas are correct.

Ape Man: ?????? I thought Keynesians hated Say's law.

Blogger IM2L844 September 22, 2012 10:51 AM  

Overly optimistic nonsense, at best. At worst, a subliminal marketing ploy, which makes Krugman nothing more than a shill, implying that you are somehow doing something positive (your fair share) to help the economy if you buy an i5.

Anonymous Godfrey September 22, 2012 10:56 AM  

Evidence and reality are irrelevant to little boys like Krugman. He is ruled by his fantasies.

Anonymous CaptDMO September 22, 2012 10:57 AM  

iPhone 5-
Broken window, or animal spirits?

"... I want everyone to note the massive logical flaw in Krugman's piece."

Kinda' like asking for low hanging, or even wind-fall fruit isn't it?

Anonymous CaptDMO September 22, 2012 11:01 AM  

Kinda' makes me want to go "occupy" the line, over night, for the LATEST...Nikes, just for the overnight 400% return on E-bay.

Anonymous Matt September 22, 2012 11:01 AM  

This guy also won a Noble Prize

Fun fact: he didn't.

He won the "Nobel Memorial Prize in Economic Sciences", which was not established by Alfred Nobel in 1895 but was created and funded by - I am not making this up - the Swedish central bank. In 1968.

Anonymous 11B September 22, 2012 11:13 AM  

Krugman wrote, "Yet depressions do end, eventually, even without government policies to get the economy out of this trap."

I have news for you: you are, whether you know it or not, an Austrian...

Blogger Nate September 22, 2012 12:28 PM  

"Does making your mom come buckets count, Nate?"

It certainly serves to demonstrate you're still haven't matured beyond the average 14 year old.

Anonymous Holla September 22, 2012 1:00 PM  

I do believe, Nate, that you in fact started it.

By pushing your little brown nose where it don't belong.

Anonymous Toby Temple September 22, 2012 1:45 PM  

Holla can't find any counter for your question, Nate. So it has to resort to momma jokes.

I do believe, Nate, that you in fact started it.

That just proves this statement to be true.

You're still haven't matured beyond the average 14 year old

Anonymous Shild September 22, 2012 1:51 PM  

Krugman wrote, "Yet depressions do end, eventually, even without government policies to get the economy out of this trap."

I have news for you: you are, whether you know it or not, an Austrian...


Touche.

Anonymous Noah B. September 22, 2012 4:45 PM  

"Not only do the morons not understand debt... they are totally clueless about the concept of mal-investment."

Seems unbelievable, but that's totally true. They don't grasp that waste destroys wealth, and that it is far easier to destroy wealth than to create it.

Anonymous FP September 22, 2012 6:51 PM  

The Krugster strikes again! I got to witness the keynesian dream this morning at the grocery store. The gal in front of me was paying for her food with her debit card and her oregon trail card (food stamps with a very ironic name). It got me wondering which card was paying for the bottle of wine, 12 pack of cheap beer and ice.

Anonymous JI September 22, 2012 7:32 PM  

My God is Krugman an idiot! His idiocy is breathtaking.

Anonymous Rantor September 22, 2012 8:44 PM  

Just reading about Foxconn at ZH. They are the beneficiaries of any real GDP bonus from Apple, they are the one with nearly a million employees not in the US. And as ZHpoints out, what happens when Foxconn comes up with a generic iPhone to sell on their own? Foxconn has Apple by the seeds, so to speak.

Imagine if we had a million Americans building electronics in the US. OK, imagine with that the $1000.00 iPhone.

Anonymous Tom O September 22, 2012 8:55 PM  

Krugman reminds me of a weird kid I knew when I was eight. The kid lived in a self-created fantasy world within his own head. Nothing could drag him out. It was difficult to even communicate with him. For him, the fantasy was reality.

When will he get out, of his solitary sheeeeeell?

Blogger LP 999/Eliza September 23, 2012 2:54 AM  

Kickass: He is the Biden of economics.

Funny comment made my day.

Blogger James Dixon September 23, 2012 11:20 AM  

> OK, imagine with that the $1000.00 iPhone.

More like the $10,000 iPhone, unfortunately.

Blogger Rantor September 23, 2012 3:54 PM  

James, not if made in a right to work state!

Anonymous Albatross September 24, 2012 9:19 PM  

"Suppose, for example, if instead of private consumers spending $3 billion on iPhones, the government spent $3 billion on purchasing and distributing pink plastic fake children's phones. Would that lead to the same economic growth? According to Krugman and the Neo-Keynesians, it would have exactly the same effect. Those who actually understand the difference between an iPhone 5 and an unusable hunk of plastic know otherwise."

False, the multipliers would be the different because the propensity to spend in Apple vs. plastic manufacturing is different. Of course Krugman would say he's in favor of higher utility generating purchases rather than lower utility generating purchases.

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