The iPhone 5 And The Economy: Don't Believe The Hype | WAMU 88.5 - American University Radio

NPR : News

Filed Under:

The iPhone 5 And The Economy: Don't Believe The Hype

The iPhone 5 will give a nice boost to U.S. economic growth in the last three months of this year, according to a new note from JPMorgan.

Not surprisingly, lots of people are writing about this note. It's a prediction about the iPhone 5! And the economy!

But the prediction is based on a ridiculous assumption.

The JPMorgan note seems very mathy and precise. It starts with the full cost of the new phone, subtracts the value of the imports in each phone (imports are subtracted from economic growth numbers) and estimates the total number of phones likely to be sold in the last three months of the year.

Bottom line, according to the note: The new iPhone could add 0.33 percent to U.S. economic growth. That's actually a lot, when you consider that total economic growth is only about 2 percent.

But to arrive at that conclusion, JPMorgan assumes that every single dollar people spend on new iPhones would not otherwise have been spent on anything else during the last three months of the year.

Say I want an iPhone 5. And to pay for it, I'm going to cut back on other spending.

My wife and I won't get a babysitter one Saturday night. Instead of going out for a nice dinner and a movie, we'll have mac and cheese and watch cable. (Sorry, honey!) Instead of buying my dad a fancy Christmas present, I'll buy him a book. (Thanks for teaching me to love reading, Pop!)

My purchase of an iPhone 5 has contributed precisely zero to economic growth. I have simply decided to spend less on childcare, restaurant food, movies and Christmas presents (all that spending would have contributed to economic growth).

The JPMorgan note doesn't account for this at all. It assumes that no one is cutting back on anything in order to pay for a new iPhone.

There is a useful, if familiar, idea hidden in this report. It's what Keynes called the paradox of thrift. During an economic slump, Keynes argued, everybody starts spending less and saving more. This, perversely, keeps the economy mired in a slump. So, in the short run, the economy will grow more if people start spending more and saving less.

To the extent that people pay for their iPhones out of savings, it will in fact contribute to economic growth in the next few months. But to the extent that people pay for their iPhones by cutting back on other things — or simply buy an iPhone rather than another, comparable phone — it won't contribute to economic growth at all.

Copyright 2012 National Public Radio. To see more, visit http://www.npr.org/.

NPR

TLC's '19 Kids' Pulled For Sex-Abuse Scandal

Josh Duggar of TLC's 19 Kids and Counting admitted "wrongdoing" amid media reports that he allegedly fondled underage girls as a teenager. NPR's Scott Simon speaks with TV critic Eric Deggans.
NPR

Clean Your Grill, And Other Hot Holiday Tips From Alton Brown

Whether you're barbecuing OR grilling, a meat-eater or a vegetarian, here's how to keep your flavor from going up in smoke this Memorial Day weekend.
NPR

Senate Blocks Measures To Extend NSA Data Collection

The Senate worked late into the night but was not able to figure out what to do about expiring provisions in the Patriot Act that authorize the NSA's bulk collection of Americans' phone records.
NPR

The Future Of Cardiology Will Be Shown In 3-D

The Living Heart Project aims to create a detailed simulation of the human heart that doctors and engineers can use to test experimental treatments and interventions.

Leave a Comment

Help keep the conversation civil. Please refer to our Terms of Use and Code of Conduct before posting your comments.