The iPhone 5 Will Cause Millions to Junk Perfectly Good Phones But It Will Not Save the Economy

Apple is expected to announce the next generation iPhone 5 today, and as if the usual hype train that accompanies a new Apple release weren’t already running off the rails, the media is now reporting that Apple could "singlehandedly rescue the U.S. economy," thanks to a report from JPMorgan.

It's simple math, really, explains analyst Michael Feroli. Feroli estimates the new phone to cost $600 before carrier subsidies, minus roughly $200 in imported costs. This means that each iPhone sold will add $400 to the U.S. economy, or about $3.2 billion, if we go by their estimate of 8 million phones sold in the fourth quarter. Annualized, that's $12.8 billion, or a third of a percentage point added to the nation's GDP. Given that JPMorgan's own estimates for the country's growth remain at a tepid 2 percent, that's a big deal. If Apple beats estimates, they could be adding a whole half percentage to American growth.

It's not the first time Apple, the largest company in the world by market capitalization, has had a disproportionate impact on the economy. Even the generally unexciting release of the iPhone 4S managed to add 0.1 to 0.2 percent to fourth quarter growth last year, Feroli writes. "Given the iPhone 5 launch is expected to be much larger, we think the estimate mentioned in the first paragraph is reasonable."

There could be an economic basis for this, explains Paul Krugman, and it has nothing to do with how awesome the new actually is, but really how cool we expect it to be. So cool, that we're willing to replace our perfectly fine old phones for something that more or less does the same thing. Remember when we used to buy (or lease rather) new cars every two to three years? Gotta keep up with the Jones's:

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 economics, this is known as the parable of the broken window (different from the theory on urban crime). To summarize: a shopkeeper's son breaks one of his store windows. Now he has to get it fixed so he calls the glazier, who makes six bucks repairing the glass, after which, everyone is happy and you could say that the broken window helped spur the economy, right? Not so fast, explains Frédéric Bastiat in his 1850 essay Ce qu’on voit et ce qu’on ne voit pas (That Which Is Seen and That Which Is Unseen), in which the parable appears:

“Stop there! Your theory is confined to that which is seen; it takes no account of that which is not seen.” It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way, which this accident has prevented.

Of course, like many economic theories these days, this one too elicits varying interpretations (as a Keynsian, Krugman thinks this can be a good thing, when applied properly). So perhaps, the bigger issue isn't that Apple is going to make cash hand over fist with the release of its new thing. It's that the GDP number it inflates is somewhat of a red herring. Sure, it's an okay benchmark for how the economy is doing, but its just one number. Apple's success has helped add few white collar jobs to the real economy. Remember, there's nothing fancy about being an Apple "Genius," who make up a large portion of Apple’s 47,000 direct hires. From what we hear, it actually sort of sucks. And take Apple's own jobs numbers with a grain of salt — they even considered UPS delivery guys in an equation that got them to the number 514,000 when reporting on the company's wondrous jobs impact.

Ultimately, a strong Apple is still great for the U.S. economy, but the future of its consumer electronics empire no longer looks as certain as it once did. With the iPhone 5 finally coming out, Apple's future product line looks much less exciting, and without the charismatic Jobs manning the ship, it's hard to hold the same confidence that the company will continue to deliver the spectacular. Even the company's rumored Apple television sets are risky propositions at best. Having seen how Apple bullied wireless carriers and publishers in the past, will the cable companies really want to play ball?

The company is also starting to feel the weight of its size, which means it will be more and more difficult to keep the pace of growth. Despite the landmark patent loss, both Samsung and Android continue to do well. Now, Apple's having supply chain issues (see Sharp's inability to deliver screens on time) causing some analysts to cut their sales forecasts, which incidentally could affect the U.S. economy, and even the election. It's alien stuff for Apple, a company famous for having its suppliers at their beck and call. Going forward, Apple will have to get used to compromise — and if that means bothering customers and the environment with planned obsolescence and unfixable electronics, or Foxconn compelling interns to build our new gadgets, then so be it, I guess. After all, the fate of the American economy is at stake.