The iPhone 5 is Keynesian economics or something

[DarrinS]

The iPhone Stimulus (lol)

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.


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?

[Clipper Nation]

Unless the iPhone 5 can inflate our dollar by printing more money, it isn't Keynesian tbh....

[boutons_deux]

Here's a badass Repug admitting the govt creates jobs (and thereby creates wealth)

Republican Leader Finally Admits That Federal Spending Cuts Kill Jobs

It’s an article of faith amongst Republicans that government can’t create jobs, and that cutting government spending will lead to job growth. Republicans even pushed the nation to the brink of a debt default in order to secure cuts in federal spending in 2010.

But with the consequences of that debt ceiling deal due to hit in January — at which point the so-called “sequester” will cut into both military and non-defense discretionary spending — House Majority Leader Eric Cantor (R-VA) is seemingly having a change of heart. On Thursday he tweeted that the sequester would hurt federal spending in key areas, and thus kill jobs:

http://thinkprogress.org/wp-content/uploads/2012/09/Ryan-budget1.jpg

http://thinkprogress.org/economy/2012/09/13/847221/cantor-admits-spending-cuts-kill-jobs/

[DarrinS]

thinkprogress -- yay! :cheer

[boutons_deux]

Darrin :lol

[Winehole23]

A recent NYT column (http://www.nytimes.com/2012/09/14/opinion/krugman-the-iphone-stimulus.html) by Paul Krugman showcases exactly what is wrong with mainstream Keynesian economics. Krugman takes a JP Morgan note claiming that the iPhone 5 would boost economic growth, then concludes that the analysis proves that bigger government deficits are a good thing. As we’ll see, the only thing Krugman has proved is that he’s committed a basic error, in confusing actual economicgrowth with a mere statistical artifact.

Let’s first establish Krugman’s case. After telling his readers that analysts have suggested that the iPhone 5 might provide a “significant boost to the U.S. economy,” Krugman went on to argue:

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.
…
A recent research note (https://mm.jpmorgan.com/EmailPubServlet?h=-825pgod&doc=GPS-938711-0.html) 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.…
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.


Krugman has things exactly backward here. I’ll first explain the correct way to think about the economy, and then we’ll diagnose specifically whereKrugman goes wrong in his own analysis.


If we take a step back and think about it, it’s obvious that spending per se isn’t the source of economic benefits. It’s easy to spend. If that were really the only thing holding back economies in recession, then one wonders why humans still suffer from recessions, in so many countries and so repeatedly throughout history.


No, the real difficulty in economic life is production, in turning scarce resources into goods and services that the consumers value. This takes judgment on the part of entrepreneurs directing the process, and it takes hard work from their employees.
In addition to inventions as well as commercial innovations in business operations, a major source of economic growth is saving and investment. Even with a fixed amount of technological know-how, people can gradually increase their standard of living over the years if they defer immediate gratification. By saving out of present income—by living below their means—people “free up” scarce resources that no longer need to be used up to make burgers, iPods, and sports cars. Instead, these resources can be redirected into making tractors, drill presses, and microscopes for drug researchers. Rather than making consumer goods for present wants, the economy cranks out capital goods to cater to future wants. This is the physical analog of how the economy as a whole grows, just as an individual household’s bank balance grows with constant saving.


It should be clear that spending per se doesn’t drive economic growth. It’s true, in a modern economy money plays a crucial role in coordinating our activities, and in that sense spending is an integral part of the story. But from this truism it hardly follows that government spending is all we need right now to “boost the economy.” On the contrary, government spending simply siphons real resources away from the private sector and into politically-chosen channels, where they will be used in inefficient ways.
So if Krugman’s conclusion is wrong, where did he misstep in his argument? The problem is that he confused the thermometer with the fever. Under normal circumstances, a plausible way to measure aggregate economic production is to count up how many dollars people spend on the products. Following a certain method, this approach yields the conventional Gross Domestic Product (GDP) statistic. There are actually many conceptual problems with the technique, but to come up with a ballpark figure—to gauge how much more “stuff” the US produced in 2012 compared to 2011—it’s not terrible.


The crucial element in the analysis, however—the one thing that makes the GDP calculation at least remotely defensible—is that much of the spending is voluntary. So if the iPhone 5 really does bring in the sales figures that the JP Morgan note estimated, then this is prima facie evidence that the consumers derive benefits from the new devices. After all, that’s why they are spending their money buying the thing.


In contrast, if the government spends the same number of dollars, there is no reason to suppose that genuine “economic output” has gone up by the same amount. In the classic example, suppose the government spends the money paying workers to dig ditches and then fill them back up. Clearly, in this scenario there would be nothing to show for the government expenditure.


In fact, the economy as a whole would be poorer, to the extent that the workers would have preferred leisure to digging ditches. If the workers voluntarily accept the ditch-digging job, then the goods they buy with their paychecks must have been redistributed from others, who are now poorer because of the taxes or deficits used to pay the government employees. After all, digging ditches doesn’t create more goods to go around.


Paul Krugman and other Keynesians can come up with bizarre theories explaining why paying workers to dig ditches actually can make society richer. But Krugman offered no such story in his iPhone analysis. Instead, he committed the basic blunder of mistaking a rise in the GDP statistic with a genuine increase in human well-being. Under normal circumstances, the two are related, and this is why we might carelessly view rising GDP as “good for the economy.” But to artificially goose the figure through government spending is to confuse a mere symptom for the real thing.

http://www.theamericanconservative.com/articles/spending-isnt-production/

[boutons_deux]

conservative stink tank screed.

faulty as a politician's ethics

[TeyshaBlue]

conservative stink tank screed.

faulty as a politician's ethics

What do you dispute in this article?

lol thinkprogress

[boutons_deux]

some many critical points are just bullshit.

govt spending doesn't create wealth (tell that to the MIC)

"spending per se isn’t the source of economic benefits"

the entire Western civilization and wealth, aka economic benefits, are based on consumers buying shit

etc, etc. I'm sure your scalpel of an intellect can dissect the article further. TB :lol

[TeyshaBlue]

some many critical points are just bullshit.

govt spending doesn't create wealth (tell that to the MIC)

"spending per se isn’t the source of economic benefits"

the entire Western civilization and wealth, aka economic benefits, are based on consumers buying shit

etc, etc. I sure you scalpel of an intellect can disset the article further. TB :lol






I can certainly spell. http://homerecording.com/bbs/images/smilies/facepalm.gif
"Spending per se isn't the source of economic benefits".

Maybe you should examine the qualifier before you bitch slap yourself...again.

BTW, I'm holding a razor next to your RSS noodle. gfy

[Winehole23]

the entire Western civilization and wealth, aka economic benefits, are based on consumers buying shitdoesn't something desirable/usable have to made in the first place, in order for a sale to happen and a profit recorded? production and utility don't count in your scheme of wealth?

seems to me you repeat Krugman's error of mistaking the measurable statistic for the process of production.

labor theory of value, hello? money isn't the golden goose, bot.

[ElNono]

If you look at the economy as a cycle of:

Spending->Demand->Production->Jobs->Spending->...

That is, spending power creates demand, demand creates production, production creates jobs, jobs provide increase spending power, spending power creates demand, etc.

I think both Krugman and Murphy agree on that.

The question is, when that cycle slows down or stops (for example, right now people rather save than spend), which one of the variables you opt to prop to kickstart it again?

Keynes argues that by having the government spend directly, it creates demand and kickstarts the cycle. When that cycle is restarted again, and there's confidence in the economy, then it's likelier that people will join in that cycle and government intervention won't be required anymore (which in Keynesian terms, it would be when government should start actually making cuts and recovering part of what it invested originally. That rarely happens, but it's another topic).

Krugman seizes on that giving the example of the iPhone 5, which is seemingly a desirable product and, he argues, causes people to increase spending and kickstart the cycle.

Murphy argues that government money would be better spent on the Production variable. He doesn't offer details how would government do that, as it's not as simple to influence as spending, but normally those go into increasing competitiveness (tax cuts, subsidies, etc).

IMO, both have their pro and cons.

Krugman's recipe is much more artificial than Murphy in creating aggregate demand, thus, long term, it gets weaker if the economy doesn't recover. At the same time, it's much more direct and thus should be more effective short term.

Murphy's recipe puts the onus on production, but if the demand doesn't materialize, or materializes at a slow pace (which normally is the case on a slow economy), where do you go?. On the other hand, it's somewhat less artificial and much more robust and direct way to affect jobs.

Both require government intervention and (deficit) spending, so in a sense, they're both 'keynesian'. They just go about it on different ways.

There's no magic bullet here.

In Krugman's case, there's variables like how much money to spend and how long can you sustain it, that can make or break a recovery.
On Murphy's case, the added production should create excess supply, and potentially lower-priced goods, but if that doesn't convince buyers to spend, then it's all for naught.

Just my 2c.

[Winehole23]

Good post. I don't think Murphy argues that government should drive production, or that that would solve the demand gap, just that it's a more reliable foundation for the wealth of a nation (normal times, long term) than public spending.

[ElNono]

Good post. I don't think Murphy argues that government should drive production, or that that would solve the demand gap, just that it's a more reliable foundation for the wealth of a nation (normal times, long term) than public spending.

Well, something gotta give. I don't disagree that if we could find a magical wand that would convince producers they should increase output, hire more people, and that "if you build it, people will buy it", but the reason we're here is that people aren't buying.

One of the few angles where government spending wouldn't be necessary is in relaxing regulations. It's still government intervention, and doesn't guarantee that will be enough to close the competitive gap, but it could be done without actually spending money. Obviously, this is on a very general basis. The analysis should be on particular industry basis.

I agree that production does give a more solid foundation than spending in the long term.

[boutons_deux]

"production does give a more solid foundation than spending"

how can production exist without clients SPENDING to buy the products?

SMBs complain that it's not taxes or regulations (as the Repug lies claim) that hold them back from producing and hiring, it's lack of demand (desire to spend).

[ElNono]

how can production exist without clients SPENDING to buy the products?

That's certainly Krugman's point. At the same time, it's a shock therapy (a weaker foundation), because government can't pump money to create aggregate demand forever.

[Clipper Nation]

how can production exist without clients SPENDING to buy the products?

People can't spend to buy the products if there aren't any products in the first place, dumbass...

[ElNono]

Both sides make certain assumptions...

on Krugman's side, that more spending power will translate in more spending. That's not always the case. People may opt to save or pay down debt.

on Muprhy's side, that benefits to prop production will indeed increase Production. That's not always the case either. Companies sometimes takes those benefits and use them to prop they profit margins instead, especially on the current market where showing good short term numbers trumps the long term.

[Th'Pusher]

Murphy's argument falls apart with the ditch digging analogy as there are actual government investments, like infrastructure, that can provide a genuine increase in human well-being.

[LnGrrrR]

doesn't something desirable/usable have to made in the first place, in order for a sale to happen and a profit recorded? production and utility don't count in your scheme of wealth?

seems to me you repeat Krugman's error of mistaking the measurable statistic for the process of production.

labor theory of value, hello? money isn't the golden goose, bot.

What's desirable/usable though does sometimes have to do with the amount of expendable cash one has available. For instance, if you were making 10,000 a month, a sporty BMW might be desirable. If you're making 2,500 a month, it might not be as desirable.

I find that the more people make, the more they tend to spend. (Not saying you'll be paycheck to paycheck if you hit six figures, but you'll likely have more expensive tastes than someone getting minimum wage.)

[Winehole23]

I was intrigued by the reference to deferred gratification, and implicitly it seems to me, the quality of life issues entailed by one's pattern of consumerism. How we spend, in addition to what we produce and how, has quality of life implications. Back when savers had a fair incentive, they had the edge on speculators, who are mostly idiots, for example. Now, that ain't the case.

[Winehole23]

I find that the more people make, the more they tend to spend.we make a lot of money, but we spend a lot of money.









been there, done that.

[Winehole23]

we could be more like Canada, of more like India and Mexico. Up to us.

[boutons_deux]

That's certainly Krugman's point. At the same time, it's a shock therapy (a weaker foundation), because government can't pump money to create aggregate demand forever.

Keynesians says govt should increase spending in the trough's economic instability, not "forever". But "background" govt spending certainly provides a momentum, a flow of money, a ballast that keeps capitalism from collapsing completely, like in 2008 when the private finanical sector was totally bankrupt.

[Winehole23]

http://www.bloomberg.com/news/2013-01-24/paul-krugman-s-worn-out-ideas-for-japan.html