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Friday, September 14, 2012

Paul Krugman: The iPhone Stimulus

The economic boost expected from the iPhone 5 shows that "the government should spend more, not less, in a depressed economy":
The iPhone Stimulus, by Paul Krugman, Commentary, NY Times: Are you, or is someone you know, a gadget freak? If so, you doubtless know that Wednesday was iPhone 5 day...
What I’m interested in ... are suggestions that the unveiling of the iPhone 5 might provide a significant boost to the U.S. economy... 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. ...
The ... reason JPMorgan believes that the iPhone 5 will boost the economy ... 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. ... 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. ... And because businesses aren’t spending a lot, incomes are low, so consumer demand is low, which perpetuates those low sales. ...
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 ... 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?

    Posted by on Friday, September 14, 2012 at 12:12 AM in Economics, Fiscal Policy | Permalink  Comments (104)

          


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