Paul Krugman endorses Say’s law! In a Sept 13 New York Times op-ed, “The iPhone Stimulus,” Paul Krugman blunders by confusing Keynes’ law (demand creates supply) with Say’s law (supply creates demand). He discusses how the production of the iPhone 5 will now bring a boost to gross domestic product (GDP) of something like half a percent. As classical economist Steve Kates wrote, “Krugman uses the production and
sale of a very much value adding item of technology to prove that Keynes was right when what he is really doing is proving that Keynes was wrong and that Say’s Law is right.” Krugman argues that when a private sector firm produces a value-adding good or service, it adds to economic growth. This is not Keynes, this is Say’s law and classical economics, which always has looked at economics from the supply side. Keynes’
“innovation,” a disaster of the highest order, was to argue that you could stimulate an economy from the demand side by simply buying things without having had value-adding production first.
Yours in liberty, AEIOU,