Category Archives: Capitalism

Jobs’ jobs versus “jobs”

On Tuesday afternoon, Apple said it earned $13 billion in the fourth quarter on $46 billion in revenue. Thirty-seven million iPhones and 15 million iPads sold in the quarter helped boost its market cap to $415 billion. A few hours later, Indiana Gov. Mitch Daniels, in his State of the Union response message, contrasted the technology juggernaut with Washington’s impotent jobs efforts: “The late Steve Jobs – what a fitting name he had – created more of them than all those stimulus dollars the President borrowed and blew.”

First thing Wednesday morning, however, Paul Krugman countered with a devastating argument – “Mitch Daniels Doesn’t Read the New York Times.” Prof. Krugman referred to the first of the Timesmultipart series on Apple’s Chinese manufacturing operations.

From Sunday’s Times:

Not long ago, Apple boasted that its products were made in America. Today, few are. Almost all of the 70 million iPhones, 30 million iPads and 59 million other products Apple sold last year were manufactured overseas.

Apple employs 43,000 people in the United States and 20,000 overseas, a small fraction of the over 400,000 American workers at General Motors in the 1950s, or the hundreds of thousands at General Electric in the 1980s. Many more people work for Apple’s contractors: an additional 700,000 people engineer, build and assemble iPads, iPhones and Apple’s other products. But almost none of them work in the United States. Instead, they work for foreign companies in Asia, Europe and elsewhere, at factories that almost all electronics designers rely upon to build their wares.

Steve Jobs designed great products. It’s very, very hard to make the case that he created large numbers of jobs in this country. Obama’s auto bailout, just by itself, saved a lot more jobs than Apple’s US employment.

So the New York Times thinks all those Chinese Foxconn assembly workers are the primary employment effect of Apple. And Prof. Krugman sidesteps the argument by noting the “auto bailout” – not the stimulus – “saved” – not created, mind you – more jobs than Apple’s under-roof American workforce.

CNNMoney jumped in:

Daniels’ math just doesn’t add up, no matter how successful and valuable Apple has become.

Not even close.

This little episode exposes quite a lot about the fundamentally different ways people think about the economy.

The economy is dynamic and complex. It’s a cooperative, competitive, and evolutionary. In recent pre-Great Recession history, the U.S. lost around 15 millions jobs every year — holy depression! But we created some 17 million a year, netting two million. There’s no way to quantify Jobs’ jobs impact exactly, which is one of the great virtues of capitalism.

An attempt to estimate in a very rough way, however, might be useful:


Apple has 60,000 total employees, around 43,000 in U.S.

Multiply these numbers by the years these jobs have existed, decades in the case of many. That’s many hundreds of thousands of “job-years.”

Then consider the broad software industry, especially the world of “apps” being developed for iPhone and iPad, and now for Macs. More than 500,000 iOS apps now exist, and 1.2 billion were downloaded in the last week of December 2011. Lots of people are trying to quantify how many jobs this app ecosystem has created. Likely it will mean many tens of thousands of jobs for decades to come, meaning hundreds of thousands of job-years, though even the “app” won’t look this way forever or even for long. We’ll see.

Apple computers, iPhones, iPads, and multimedia software, like OSX, iOS, Quicktime, and WebKit, drive the Internet and wireless industries. (WebKit is an open software platform developed by Apple that most people have never heard of. But it’s crucial to Internet browsers and webpage development.) These devices allow people and companies to create content. They improve productivity and create new kinds of jobs. How many graphic designers would we have had over the years without the Mac?

Apple devices devour bandwidth and storage and drive new generations of broadband and mobile network build-outs, totaling about $65 billion per year in the U.S. So add some significant portion of networking equipment salesmen and telecom pole-climbers and Verizon and Comcast workers and data center technicians. The iPhone alone completely reinvigorated the U.S. mobile industry and ushered in a new paradigm of computing, moving from PC to mobile device. Apple jolted AT&T back to life when the two companies partnered on the first iPhone. How many jobs across the economy did the iPhone “save” by boosting our digital industries when the PC era had about run its course? A lot.

Jobs created a new digital music industry. It’s impossible to gauge how many jobs were created versus eliminated. But clearly the new jobs are higher value jobs.

Apple is now the largest buyer of microchips in the world. It buys 23% of all the world’s flash memory, for example. Much of that is South Korean. But Apple probably buys something like 20 million Intel microprocessors each year. That’s a huge part of Intel’s business. Intel employs 100,000 people (not all in the U.S.).

The notion that “almost none” of the “additional 700,000” people who contribute to designing and building Apple products work in the U.S. is false. And silly.

Apple’s list of suppliers includes many of America’s leading-edge technology companies: Qualcomm, Intel, Corning, LSI, Broadcom, Seagate, Micron, Analog Devices, Linear, Maxim, Marvell, International Rectifier, Western Digital, ON Semi, Nvidia, AMD, Cypress, Texas Instruments, TriQuint, SanDisk, etc.

Lots of Apple’s foreign suppliers have substantial workforces in the U.S. Oft cited are the two Austin, Texas, Samsung fabs, which employ 3,500 workers who make NAND flash memory and Apple’s A5 chip. But many Asian and European Apple suppliers have sales, marketing, and support staff in America.

And of course no government or stimulus jobs are possible without private wealth creation. During the “stimulus” period — 2009-11 — Apple paid $16.5 billion in corporate income taxes, thus financing about 2% of the entire $821 billion stimulus package and thus 2% of the stimulus “jobs.” One might counter that stimulus was funded with debt, but money is fungible, and issuing debt depends on future claims on wealth. Moreover, because stimulus jobs were so extraordinarily expensive, a different accounting says that Apple’s $16.5 billion in taxes could have paid for 330,000 $50,000-a-year salaries.


In 1986, Steve Jobs bought a tiny division of George Lucas’s LucasFilm and created what we know as Pixar, the leading movie animation studio. In 2006, Pixar merged with Walt Disney. Disney has 156,000 employees and $41 billion in sales, a growing portion of which directly or indirectly relate to Pixar properties, film development, characters, licensing, and distribution. Pixar really saved Hollywood during a dark time for film and spawned a whole new animation boom. Pixar developed and inspired many new technologies for film making, video games, and other interactive visual media.

An additional consideration: Over the 2009-11 period, Disney paid $7 billion in income taxes, thus financing just under 1% of the stimulus and 1% of the “jobs.” That $7 billion could have funded 140,000 $50,000-a-year salaries.


The economy-wide effects of Steve Jobs are of course impossible to measure with precision. But a new study from Robert Shapiro and Kevin Hassett estimates that advances in mobile Internet technologies boosted U.S. employment by around 400,000 per year from 2007 to 2011, or by a total of around 1.2 million over the 2009-11 stimulus period. The Phoenix Center found similar employment effects. What proportion of these can be attributed to Steve Jobs is, again, impossible to say. But it’s clear Apple was the primary innovator in mobile Internet technologies in this period, towering over a multitude of other important technologies. More than any other device, the iPhone exploited the new, larger-capacity 3G mobile networks of the period, and once it proved wildly popular it was the chief impetus for additional 3G mobile capacity.


CBO estimates ARRA (the Stimulus bill) yielded between 1.3 and 3.5 million job-years net, meaning created or saved. But as the stimulus wanes, many of these jobs go away, or at least are not attributable to the stimulus.

Robert Barro of Harvard questions whether ARRA created any jobs at all. He says the question isn’t whether the Keynesian multiplier is greater than 1 (meaning break even; spend $1, get $1 in GDP), let alone whether it’s 1.5 (spend a dollar, get $1.50), but whether the multiplier is greater than zero.

Stanford’s John Taylor also thinks ARRA had no positive effect.

And do stimulus-boosters really want to equate these two activities?

(1) the federal government pays a state worker’s salary for a year instead of the state paying the salary;

(2) a new job derived from an entrepreneur who’s created whole new industries with new kinds of higher value jobs that last for decades, spurring yet more growth and jobs.

In Keynesian macro world those two jobs are equivalent, I guess.

The CNNMoney report acknowledged the 43,000 U.S. employees of Apple and also the 850 employees of Pixar at the time it merged with Disney in 2006. It even allowed that perhaps Pixar could employ twice as many people now. It also grudgingly admitted that maybe some Americans are building apps for the App Store. That’s about it.

This imprecise exercise misses the deeper truths of entrepreneurial capitalism and short-changes the dynamic versus static view of the economy. In a new article today, which I just see as I’m finishing this post, Prof. Krugman quite rightly notes the importance of industrial clusters to growth. He cites the Chinese supply-chains highlighted in the NYT series. But he entirely ignores the most famous and successful cluster on earth — Silicon Valley. How many jobs in Silicon Valley do we think are dependent on or symbiotic with Apple. It’s incalculable, but its a lot.

I asked Gov. Daniels what he thought.

“I won’t be reading Herr Krugman,” Gov. Daniels replied, “but I did read the New York Times, and it changes nothing. Just means Dr. K doesn’t understand the dynamism of innovation, either.”

— Bret Swanson

A Culture of “Futurity”

Yesterday I attended an event of the National Chamber Foundation and the American Enterprise Institute. The topic was “Challenges to Creating 20 Million New Jobs.” But, appropriately, and at the urging of one of the panelists, AEI president Arthur Brooks, we ended up talking about the importance of a “culture of entrepreneurship.” I mentioned I had just witnessed one of the great cultures of entrepreneurship at the three-day Gilder/Forbes Telecosm conference, this year focused on the technology companies of Israel, where a surge of venture capital and hyper-entrepreneurial activity has created a boom.

Today, David Brooks nicely captures this ethos of “futurity.” He worries that China has it, and we don’t.

It may seem like an ephemeral thing, but this eschatological faith in the future has motivated generations of Americans, just as religious faith motivates a missionary. Pioneers and immigrants endured hardship in the present because of their confidence in future plenty. Entrepreneurs start up companies with an exaggerated sense of their chances of success. The faith is the molten core of the country’s dynamism.

There are also periodic crises of faith. Today, the rise of China is producing such a crisis. It is not only China’s economic growth rate that produces this anxiety. The deeper issue is spiritual. The Chinese, though members of a famously old civilization, seem to possess some of the vigor that once defined the U.S. The Chinese are now an astonishingly optimistic people. Eighty-six percent of Chinese believe their country is headed in the right direction, compared with 37 percent of Americans.

Exploring Optimums on Multiple Political Economic Axes

What is the optimal economic arrangement to produce innovation and growth? And what is the optimal political arrangement needed to encourage and sustain such an economic order? I spend a lot of time thinking about these questions (as here in a paper on the rise of China). And so I’d recommend this thoughtful blog post by economist Scott Sumner. Sumner’s been blogging a lot on his recent trip to China and on the macroeconomics of the financial crisis/recession/rebound.

I disagree with a number of Sumner’s conclusions on the macro and political-economy fronts, but it’s insights like the one below that keep me reading Sumner.

Switzerland’s high level of democracy doesn’t just come from referenda, it also comes from its extreme decentralization.  This makes it a highly successful multiethnic society, and not just when compared to places like Yugoslavia and Iraq, but even in comparison to Belgium or Canada.  Another advantage of decentralization is that small places are less likely to be protectionist, as the gains from trade are much more obvious.  In addition, it is much easier to monitor and root out rent seekers in a community where most people know each other.

Romer’s transformative “Charter Cities”

Stanford economist Paul Romer has had lots of good ideas over the years. Particularly his ideas about the importance of ideas in the economy. But his “Charter City” idea explored at the recent TED conference is one of the best yet.

Maybe I like it so much because it so closely tracks the concepts offered in my long paper of last August called “Entrepreneurship and Innovation in China – 1978-2008 – Thirty Years of Decentralized Economic Growth”, a follow-on article in The Wall Street Journal, and a previous essay “Breaking Metcalfe’s Law” on the economic importance of the exchange of ideas.

Romer uses China’s “free zones” envisioned by Deng Xiaoping and initially implemented by one Jiang Zemin as the chief example of how his charter cities would work in practice. He explains how they might cut the political-economic Gordian knot of societies too stuck in the past to make obviously needed rule changes that open the floodgates of ideas and entrepreneurship. These were the key themes of my paper.

Also check out this working paper by Romer that surveys the economic growth literature (hat tip: Growthology).

Quote of the Day

“In a few years we might actually find that we are hungry for more capitalism, not less. An economic crisis slows growth, and when countries need growth, they turn to markets. After the Mexican and East Asian currency crises — which were far more painful in those countries than the current downturn has been here — the pace of market-oriented reform speeded up. If, in the years ahead, the American consumer remains reluctant to spend, if federal and state governments groan under their debt loads, if government-owned companies remain expensive burdens, then private-sector activity will become the only path to creating jobs. With all its flaws, capitalism remains the most productive economic engine we have yet invented.”

— Fareed Zakaria, June 16, 2009

Jack Kemp, 1935-2009

I have a photo of my father from around 1982, standing on the tarmac of South Bend airport with Jack Kemp. The economy was in the tank, and America’s world standing was uncertain. My Dad had gone to pick up Kemp, who was to speak at an event for his fellow Republican, Jack Hiler, who was our friend and congressman from northern Indiana. I was maybe eight years old at the time. We were Reagan-Kemp-Hiler conservatives, interested in entrepreneurship, economic growth, and a muscular but prudent international stance.

Some 15 years later I would go to work for Kemp as an economic analyst. It was not preordained, but neither was it a complete coincidence, I suppose, that I spent several years working for the man who, more than any other public official, had articulated and even helped shape my, and my family’s, worldview. Kemp and I even shared the same birthday, July 13.

It is difficult to overestimate Kemp’s impact on history. For those who don’t grasp the importance of economics in politics and geostrategy, that will seem a wild overstatement. But I do think Kemp changed the arc of human events by helping to launch the U.S. on a much higher growth trajectory. By freeing American workers and businesses and attracting the world’s human and financial capital, the Reagan-Kemp economic strategy of tax cuts, sound money, and deregulation unleashed two and a half decades of amazing feats in technology and entrepreneurship. Within just a few years, the American boom of the 1980s shook the Communist world and allowed Reagan to peacefully conclude the Cold War. These events not only bolstered the wealth and ideological foundations of the West but freed hundreds of millions of people in the East and set the stage for the next great wave: the low-tax-free-trade phenomenon we call globalization, which has brought at least a billion more people out of poverty.

Kemp was not immune to the ego-pumping of life on the Potomac. But football and his middle-class upbringing had given him a healthy concept of “the team.” More than almost any politician I have encountered he was deeply interested in ideas. (What other politician would spend so much time — or any time at all — on the intricacies of monetary policy?) And in getting at the truth. And in building a positive sum politics through energy and persuasion, not cleverness or negativity. He was a builder, not a destroyer.

Having been a central player in creating the long boom, Kemp was also a long-time critic of the wildly gyrating monetary and dollar policies that led to the crash and ended this particularly prosperous period in American history. Not coincidentally, it is Kemp’s enthusiastic, expansive, inclusive brand of politics that might help his party regain its footing so it can help launch the next great American wave. Kemp would have no doubt whatsoever America’s biggest, best, brightest days are ahead. 

I join many friends and former colleagues in offering Mrs. Kemp, Jeff, Jimmy, and the whole Kemp family my condolences, and deep gratitude for sharing Jack with the world.

Associated Press


“Capitalist for the Common Man” – The Wall Street Journal

“The Jack Kemp I Knew” – Richard Rahn

“Jack Kemp: The Happy Warrior” – Bruce Bartlett

“Jack Kemp, Our JFK” – Mona Charen

“Will the GOP Forget Reagan and Kemp?” – Dan Henninger

“He Had the Power of the Happy Man” – Peggy Noonan

“The Life of His Party” – David Broder

“Jack Kemp: Conservative Hero”The Economist

“Quarterback of GOP Ideas” – Ed Rollins

Don’t judge this book by its title

Bloomberg columnist Caroline Baum exposes the crucial paradox between the title of Judge Richard Posner’s new book — A Failure of Capitalism — and the contents of the book, which mostly blames the Federal Reserve for the financial crash. 

I asked Posner why the Fed’s errors constitute a failure of capitalism. He said the central bank was part of the “capitalist structure,” along with property rights and a judicial system to enforce them. To the extent that the Fed mismanaged the money supply (or interest rates) and failed to assure “a reasonable degree of economic stability,” it has to be regarded as a failure of capitalism. . . .

“[Milton Friedman] wouldn’t agree” it was a failure of capitalism, said Anna Schwartz, a research associate at the National Bureau of Economic Research and Friedman’s co-author on “A Monetary History of the United States, 1867-1960.” “It was a failure of government.”

The Fed conducted “very easy monetary policy, which permitted the asset-price boom,” she said yesterday in a telephone interview. “It had nothing to do with capitalism failing. It had to do with the policies and institutions that conducted them.”

Quote of the Day

Charlie Rose: “Do we need to change capitalism?”

Bill Gates: “Not in some dramatic way. . . . There are some particular things that went on. But the fundamentals of, you create a company, you have a good idea, you get to hire people. . . . When you do that, the kind of thing that allowed Microsoft, or other great technology companies, to come along . . . I don’t think we’re going to do anything that would really blunt those kind of opportunities, and the huge societal benefits that it creates.”

— Bill Gates interviewed on Charlie Rose, April 28, 2009, at 49:20

Don’t blame capitalism

It’s the only thing that can save us, write the always excellent Carl Schramm and Bob Litan.

we believe one of the major reasons for the resurgence in productivity growth in the 1990s and through much of this decade was the transformation of our economy from managerial capitalism dominated by large existing firms (think Big Autos, Big Steel, the old AT&T, and the old IBM) into a vibrant form of entrepreneurial capitalism powered by new high-growth firms (think the younger Microsoft, Intel, Cisco, and Google). If too many of our larger financial and nonfinancial firms become wards of the government for too long, we fear that could politicize credit decisions and tilt the economic playing field away from entrepreneurial endeavors. Large enterprises whose creditors know they will be protected if the firms run into trouble are more likely to take imprudent risks and put U.S. taxpayers in jeopardyas we have learned too well with Fannie and Freddie.

What’s lost vs. what might be gained

David Malpass with a typically cogent column on the crisis of lost capital and plunging consumption, but also the more important factors that drive the future.

Losses in U.S. wealth and self-confidence have been massive, with job conditions still worsening. But a long downtrend into 2010 isn’t inevitable, even assuming a systematic lurch to bigger government. A starting point for optimism is to realize that the creation of new capital is more important than the loss of old capital. This is hard to absorb emotionally during a crisis. The world’s past wealth creation is outstripped every generation by innovation, human progress and the rapid growth of the above-subsistence population.

Consumption may also prove less important to the recovery than asserted in the warnings of another Great Depression. Consumption crashed after theLehman Brothers bankruptcy. With consumption equaling 70% of GDP, a downsizing there would decimate GDP if the economy were static. Yet GDP itself means production, not consumption. A lot of U.S. consumption has been idle or is sourced abroad and won’t be missed. The GDP issue is whether the Crash of ’08 will cause people to work fewer years, less hard or less productively. That’s unlikely.

Even for those deeply worried about old capital and weak consumption there are grounds for optimism. So far most of the banking sector losses have been accounting writedowns, not cash losses. Layoffs would slow and consumption resume if the Fed sped its asset purchases and Washington stopped imposing arbitrarily low prices on equity holders and regulatory capital in the blind assumption that crisis markets are accurately priced.

China, the Dollar, and the Crash

See my latest on the nexus of China trade, monetary policy, and our current crisis in Monday’s Wall Street Journal. Contrary to the new conventional wisdom, which is gaining considerable steam, I argue that:

America did not underreact to the supposed Chinese threat. It overreacted. The problem wasn’t “global imbalances” but a purposeful dollar imbalance. Our weak-dollar policy, intended to pump up U.S. manufacturing and close the trade gap, backfired. Currency chaos led to a $30 trillion global crash, an energy shock, bank and auto failures, and possibly a new big government era. For globalization and American innovation to survive, we must first understand the Chinese story and our own monetary mistakes.

A “more competitive currency” and monetary “stimulus” cannot create new wealth. Only technology and entrepreneurship can do that. The “China currency” issue distracts America from all the important things that could actually make us more competitive –e.g., better K-12 education, much lower corporate tax rates, cutting-edge broadband networks, less (not more) centralization and power in Washington, and, of course, a stable dollar.

Quote of the Day

we may be approaching a tipping point for democratic capitalism.

— Peter Wehner and Paul Ryan, January 16, 2009

Life imitates art

Steve Moore with a good retro-and-possibly-pro-spective on Atlas Shrugged.

Tech Killers

Michael Malone says Washington is killing Silicon Valley. Among the depressing metrics:

in all of 2008 there have been just six companies that have gone public. Compare that with 269 IPOs in 1999, 272 in 1996, and 365 in 1986.

Citing in particular an amazingly large array of new accounting rules, including but not limited to Sarbanes-Oxley, Malone gets the key problem:

From the beginning of this decade, the process of new company creation has been under assault by legislators and regulators. They treat it as if it is a natural phenomenon that can be manipulated and exploited, rather than the fragile creation of several generations of hard work, risk-taking and inventiveness.

The thirty-year miracle

Three decades ago today, Deng Xiaoping shook the world.

Danger Zone

We are in a new, if entirely predictable, danger zone. The State of Illinois and City of Chicago are now ceasing business with Bank of America because BofA declined to extend credit to Republic Windows and Doors, a plant where workers are now engaged in a sit-in. 

The take-over of much of the U.S. financial industry — with health care and maybe energy next — could lead to endless mischief of this sort and much worse.

A friend writes to say: “fascism has come to America.” Alarmist, or prophetic?