Last week in his New York Times column, Paul Krugman
cheered Apple’s introduction of the iPhone as an example of the
Keynesian theory of how depressions end — through “use, decay, and
obsolescence,” which provide the stimulus economies need to
recover. He went on to suggest that government can do what Apple
does by increasing spending.
I then wondered whether Krugman was channeling Mad
Magazine’s satirizing of planned obsolescence. In its early
days, the magazine suggested that companies had figured out that
making your products obsolete quickly was a real money-spinner, and
so would build obsolescence into them. The example that always
stuck with me was the humble eraser, which Mad noted now
seemed to have a thin shell of eraser materiel surrounding a
vulcanized rubber core, forcing you to throw the eraser away and
buy a new one after just a few uses.
Taken to its logical extreme, Mad’s planned
obsolescence business model could become the foundation for a whole
new economic theory of growth. Make your products easily disposable
and jobs will be guaranteed! More workers, more shops, more
salespeople! The economy will be humming right along.
Of course, it wouldn’t be. An economy based on planned
obsolescence falls afoul of the classical French economist Frederic
Bastiat’s warning about broken windows. Why not break a shop window
deliberately, as it will provide employment to the glazier and a
new window to the shopkeep? Because this simply diverts the
shopkeep’s money away from a more productive use — all that
happens is the economy is down one window instead of up something
else.
However, Krugman’s celebration of obsolescence does ring true in
one way. It is innovation — which sometimes, but not always, makes
products obsolete as a consequence (it can also make existing
products more efficient) — that drives the end of recessions. Yet,
the current bloated regulatory state that Krugman also celebrates
is an enemy of innovation. Regulations make it difficult to start a
business, difficult to find money to finance a business, and
difficult to bring a product to market.
For instance, according to my colleague Wayne Crews, businesses
with just one employee have to comply with 10 different costly
regulations. By the time you get to 100 employees, you have to
comply with 20 regulations for each and every employee. In fact,
regulations cost small companies over $10,000 per employee
each year. That’s quite a barrier to innovation right there.
Then there’s the difficulty in raising money. It used to be that
a bank could give a promising start-up a loan. Today, due largely
to financial regulations aimed at big corporations, small companies
cannot access finance as easily as they used to, which is one
reason why crowdfunding has
taken off. There has been some small relief since the passage of
the bipartisan JOBS Act, which has made stock market launches
easier, but much remains to be done.
As a final example, many innovative products have to jump
through regulatory hoops before they can be sold. Medical devices,
to take just one case, have significant restrictions placed upon
them, made even worse by a new tax imposed on them to help pay for
the Obamacare bureaucracy.
Then there is the barrier to innovation imposed by America’s
patent courts, which Apple used to sue Samsung over its competing
smartphones, after patenting such innovations as a “rounded
rectangle shape.” By using these barriers, Apple has protected
itself from competition to increase its market share — and, in the
Krugman view of the world, harmed the economy by preventing its own
phones from becoming obsolete quickly.
If Paul Krugman is serious about wanting an economy where
products grow obsolete quickly, he should be arguing for radical
and swift deregulation. The fact that he isn’t suggests that what
he really wants to do is grow the size of government, seemingly for
ideological reasons. It is that ideology that needs to become
obsolete if we are to get out of this recession.
