Government iPhones for all?

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The efforts around the nation to make basic economics a requirement at the high school level cannot succeed quickly enough. We have a struggling economy to protect from reality-challenged university academics and the administration they control.

When a Nobel Prize winner specializing in international economics enjoys unusual influence on our government's domestic policies -- policies that impact millions of lives -- and when he writes these opinions while ignoring basic economic truths and failing Logic 101, it's time to be concerned.

Paul Krugman's Thursday column in The New York Times, "The iPhone Stimulus," is an eye-popper: The oft-honored economist cites recent research from JP Morgan that predicts sales of the new iPhone 5 could give the U.S. economy a boost, "adding measurably to economic growth" -- one-quarter to one-half a percentage point -- "over the next quarter or two."

If you find this research "plausible" (although JP Morgan warned that its projections should be "treated skeptically"), then "I have news for you," Mr. Krugman asserts.

"You are, whether you know it or not, a Keynesian -- and you have implicitly accepted the case that the government should spend more, not less, in a depressed economy."

No, I am not and I do not. Explicitly.

My rejection of Mr. Krugman's claim does not rest on a Ph.D. and a lifetime's research. It rests on two college economics courses; experience as a consumer, taxpayer and business co-owner; and the fact that I can read.

If I find it an interesting possibility that avid demand for the latest in an iconic line of techno-gadgets can spur economic activity in fields related to its roll-out, it does not follow that I think the federal government can mimic this success or should try. In fact, both a century's history and recent experience (think "shovel-ready projects") demonstrate otherwise.

But Mr. Krugman doubles down on his unsupported -- indeed, fallacious -- claim: "If you believe that the iPhone 5 can give the economy a lift, you've already conceded both that the total amount of spending in the economy isn't a fixed number and that more spending is what we need. And there's no reason this spending has to be private."

Actually there are two very important reasons this spending ought to be private:

One, because countries with centrally planned economies -- from the old Soviet Union to today's European debacle -- have demonstrated conclusively that such plans do not work. Government bureaucrats are notoriously poor investors. (See also "shovel-ready projects," U.S., 2009.)

And two, because the money our government would use for such spending is money it removed from us, via taxation, that we would have allocated more efficiently ourselves. (See reason No. 1.)

Or it is money that the government has borrowed, thus increasing the federal deficit, something that deeply troubled Mr. Krugman when George W. Bush was president.

Debt-based government spending isn't the solution to our problems. The U.S. Senate Committee on Commerce, Science and Transportation did not invent the iPhone. The late, great Steve Jobs did. He built that.

And I want one.

As a layperson, I know that the interaction of supply and demand is often unpredictable (can you say "fad"?), that it's good when one does not far outstrip the other (unless it's high demand and you're the fad's inventor or financier), and that what motivates a consumer to spend this month (the new iPhone) may not get him out of the house next month to buy, say, a dishwasher.

Mr. Krugman is concerned that consumers and businesses are not spending enough and that our failure to buy or to hire, creates a vicious recessionary cycle. But in fact, consumer spending has been rising this year, and it has not helped lower the unemployment rate, improve the nation's bond rating or reduce our enormous debt.

Clearly, it's complicated. But if anyone still insists that a stimulus is what we need, why not let the people who are actually in the marketplace figure out where to do the stimulating? To take a page from Mr. Krugman, I'll quote myself: "What is a tax cut but a government stimulus delivered by far more efficient means?"

If American businesses are sitting on whatever cash they do have instead of spending it, perhaps it's because they're nervous about what lies ahead -- from the skyrocketing health insurance premiums of Obamacare to the Fed's latest inflation-inducing, election-affecting move.

Our individual creativity and the desire it stimulates or the needs it meets for others are what drive the American economy. Getting out of our way is the smartest thing government can do.


Ruth Ann Dailey:


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