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 realise 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.
At the end, he argues, that it would be nice if we could spend on some useful infrastructure.
This post will infuriate sceptics of Keynesianism, who argue that crude spending doesn’t improve the economy, but rather technological, life-improving innovations… like the new iPhone.
But Krugman is rightly turning this on its head, pointing out that the marginal improvement from the iPhone 4s to the iPhone 5 isn’t that much of an economic gamechanger, but that the spending that will happen when people abandon their own phones an upgrade to the iPhone 5 is what will boost the economy (providing jobs, and so forth).
One tragedy of the iPhone is that Apple has more cash than it knows what to do with, so a lot of this money will end up sitting in Treasuries or whatever else, and not come back into the economy. That’s the case with pretty much all large corporations, however.
The bottom line still stands: spending-qua-spending is what boosts the economy in a deflationary trap.
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