It must be hard to be Paul Krugman, living in a fantasy world dreamt up by John Maynard Keynes, an economist who did his politico-economic philosophizing in the midst of a contraction in industrial output and demand in world where population and wealth was otherwise robustly growing.  Keynes’ lessons are about as relevant to today’s economic performance as buggy whip production metrics were to economic analysis during Keynes’ day, but Krugman never fails to trot the old dead master out to justify the economic foundations of his political impulses.

In a recent article, Krugman cited the research note I referenced in a recent post to show how the iPhone 5 might juice economic performance:

 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.

But from where will this spending come?  If Apple manufactures the phone overseas, none of the wages accruing to overseas laborers can be used to purchase phones domestically (this is simply due to the methodology with which GDP is calculated).  No domestic incomes increase because of increased sales of the iPhone, except those of a few Apple executives.  Is Krugman therefore advocating that trickle down economics will produce the economic growth he claims will occur because of increased spending?   Is he saying that the rapidly accumulating wealth of Apple executives will be spent on services provided by the little people enough to increase incomes so that new iPhones, and other things, can be purchased?  Otherwise, increasing spending without increasing incomes yields less saving or more borrowing.  Is this a thing cash-strapped Americans really need?

What more in the way of Keynesian spending could Krugman possibly want?  Already, there have been at least a trillion dollars per year in Keynesian fiscal deficits for the last five years, which is anticipated will continue each year hereafter, all the way to the long run, when we’re all dead, and it won’t matter.  Already, the schedule of interest rates is below zero.   How could anything more make any more difference? 

Krugman claims that if you believe the iPhone 5 will juice economic growth, then you believe like Keynes that our problems stem from a failure of demand, requiring more government spending to spark an expansion in demand.  I say, if you believe the iPhone 5 will juice economic growth in the US, then you either don’t know how economic growth is calculated, or you believe that making the few Apple employees in America richer will ultimately tickle down into increased spending for the rest of us.  In other words, if you believe like Krugman about the iPhone, you are either an ignoramus, or ironically, a supply-side Republican.

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