Krugman Confuses iPhones with Broken Windows

Paul Krugman is at it again, either intentionally misleading readers or demonstrating an odd lack of familiarity with an economic theory. I'm assuming he is misrepresenting the theory he discusses and is misleading readers.
Broken Windows and the iPhone 5
http://krugman.blogs.nytimes.com/2012/09/11/broken-windows-and-the-iphone-5/September 11, 2012

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.
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.
No, you have not bought into the "Broken Windows" theory of economics. First, it is not a theory but is instead a famous fallacy about economic activity and what is called opportunity costs within an economy. Second, and this is a major point, most people predicting economic gains from the iPhone do, in fact, assume that many of the purchasers are seeking "happiness" and increased productivity.

How can Krugman seriously claim that the iPhone sales will have "not much" to do with quality, happiness, and productivity? People don't form lines at Apple Stores and phone carriers because they consider the iPhone merely another smartphone. When I finally moved from a standard phone to an iPhone, it was a huge improvement.

I use the maps feature to navigate, the on-screen coupons at various stores, the email when I'm away from my computer, and various fitness applications that have helped me lose 40 pounds. Seems to me that the phone has improved my life, significantly. And I know I am not alone among iPhone users.

Updating my phone wasn't merely a matter of tossing away the old phone. I recycled the old phone, which seems reasonable, and the choice to buy a new phone was not easy. My wife and I count pennies. We don't toss away money simply to have the latest and coolest toys. Because we live in a new city, in a new state, one of my options was a GPS — which the phone has. I couldn't seem to locate any useful maps, strangely enough.

What Krugman calls the "Broken Window Theory" assumes you are replacing one thing with a like thing — not upgrading, not gaining anything.

The broken window fallacy was a parable told by French economist Frederic Bastiat. His theory was that destruction alone does not add to an economy. For example, a tornado might cause a building boom in its wake, but what is built does not add to an economy. Instead, rebuilding redirects funds that would have been spent on new items and improvements to existing houses.

In Bastiat's parable, a man's son breaks a window. Obviously, the man will have to pay to replace it. The villagers debate what has happened and determine the boy has performed a service! The man will have to pay for a new window, the installation of the new window, and any taxes. The glazier (glass specialist) will earn money, therefore, and spend that money.

Bastiat demonstrates that serious analysis reveals the Broken Window Fallacy. When he broke a window, the man's son has redirected the father's income. Instead of purchasing new shoes, better meals, or investing in his own business, the father has to spend money on an item he doesn't want to buy and would not normally need to buy. The broken window helps the glazier, but it definitely does not help the father of the boy. Replacing a window that has already been purchased is a maintenance cost — beneficial in the short-term only, and it takes money from other industries the father might have supported.

Read more: http://www.investopedia.com/ask/answers/08/broken-window-fallacy.asp

I buy a new computer every four to six years. This is not merely a "broken window" example. The new computers run new software, usually much faster. What once took me hours can then take minutes. Features like wireless networking, memory card readers, and more, have make me more productive. The costs are recouped, because I value my time. The more I can do for myself, the better.

Maybe Krugman wouldn't find a new computer or a new phone useful, but that doesn't mean his assumption that many of us are replacing items for no good reason is correct. It seems like a leap to me and probably to many iPhone owners. Apple sells easy-to-use products that do increase user productivity. They aren't selling windows… pardon the pun.

[UPDATE 17 September 2012]

A colleague reminded me of the "Broken Windows Theory" as applied to crime rates and studies of urban gentrification. As a neighborhood is improved aesthetically, the crime rate falls. Malcolm Gladwell has written about this, and there are many studies of the theory.

If anything, new iPods and iPhones might lead to a slight increase in theft. At least, that's been the experience of my students. 

Comments

  1. Those iPhones are breaking left and right, my sister dropped hers ONCE on the ground and when she picked it up there was a bigger crack in it then there would be if you punched it with your hand. Its ridiculous. Is there anyway to fix the glass?

    -Solomon Berkovitch
    Window Repair Brooklyn

    ReplyDelete
  2. I'm sure there are people who argue well in favor of neo-Keynesian theory, but Krugman is not one of them. I avoid his column as often as I can to avoid ridiculous arguments like this one.

    On the plus side, at least police will know whom to look for if a hobbit goes on a rampage through NYC, shattering iPhones and giggling all the while.

    ReplyDelete
  3. I'm sure there are people who argue well in favor of neo-Keynesian theory, but Krugman is not one of them. I avoid his column as often as I can to avoid ridiculous arguments like this.

    On the plus side, at least police will know whom to look for if a hobbit-ish individual goes on a rampage through NYC, shattering iPhones and giggling all the while.

    ReplyDelete

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