Friday, September 14, 2012

Time Horizons: iPhone Edition

Paul Krugman says that if you believe the new iPhone will boos the economy, then you are a Keynesian.  Here's his argument:
The crucial thing to understand here is that these likely short-run [economic] 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.
 Needless to say, FLG believes that there's a huge difference the almost secondary short run economic boost created when millions of individuals making millions of decisions to buy a product that they expect will improve their life in the long run and the government, through its messy political and bureaucratic process to spend a bunch of money.

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