Krugman and the Broken iPhone 5 Fallacy

September 13, 2012
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Krugman is at it again.  Apparently if you acknowledge that sales of new iphones will register as an increase in GDP, which is basically a measurement of sales, this means that you have bought into his broken window theory. Read what he said for your self. 

“There’s been some buzz about a report suggesting that the iPhone 5 could, all by itself, give a significant boost to the US economy. I can’t judge how plausible the sales estimates are; but it’s worth pointing out how the economic logic of this suggestion relates to the larger picture.
 

The key point is that the optimism about the iPhone’s effects has nothing (or at any rate not much) to do with the presumed quality of the phone, and the ways in which it might make us happier or more productive. Instead, the immediate gains would come from the way the new phone would get people to junk their old phones and replace them. 

In other words, if you believe that the iPhone really might give the economy a big boost, you have — whether you realize it or not — bought into a version of the “broken windows” theory, in which destroying some capital can actually be a good thing under depression conditions. 

Of course, it’s nice that the reason we’re junking old capital is to make room for something better, not just for the hell of it. But you know what would also be nice? Building useful stuff like infrastructure employing labor and cash that would otherwise sit idle.” (http://krugman.blogs.nytimes.com/2012/09/11/broken-windows-and-the-iphone-5/) 

Earth to Krugman, the registered gains that people are estimating are to the GDP number, an immediate measurement of spending, not the economy, which is generally viewed as the long term health of a nation’s well being.  You see to Krugman an increase in overall spending equals a benefit to the overall economy.  So if you acknowledge that iphone 5 sales will increase spending, that means, at least to him, that you are also admitting that it will be a benefit to the overall economy in the long run.  Isn’t that wonderful logic?  If you acknowledge and aspect of arithmetic you apparently also acknowledge Krugman’s economic lunacy.  That is incompetent logic, and worse even yet, claiming that increase in spending is automatically a benefit to an economy is economic illiteracy.  You would think that Krugman would have already learned this lesson after he advocated that a housing bubble would be a gain to the economy.  I think it is pretty evident now that the increased spending under the housing bubble was not a benefit to the economy, and that we all would be better off if it never happened.  

For spending to actually be a net benefit for the economy in the long term, it has to be productive or what regular people call useful. Which brings us to roads.  Sure, it is plausible that construction of new infrastructure could end up being useful and a benefit to the economy.  So could construction of electric cars (Volt), or solar panels (Solyndra).  You see not everything that is plausible actually becomes realized.

Since government takes resources from the private sector for its projects, things get even more complicated.  We do not have an infinite amount of resources, which means that if you use a resource for one project, you can no longer use it for any other alternative.  So for government infrastructure projects to be a benefit to the economy, Krugman needs to show that the enhanced productivity from this type of government infrastructure spending is equal to or greater than the enhanced productivity that otherwise would have occurred if these resources had been left for the use of the private sector for other alternatives.  Otherwise this type of spending just ends up being an economic cost, much like the housing bubble.  Has Krugman ever tried to demonstrate this?  This is why he is a hack.

 

 

   

 

 

 

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