BETA
This is a BETA experience. You may opt-out by clicking here

More From Forbes

Edit Story

A Decade Of Apple's iPhone - Trickle Down Economics That Actually Works

This article is more than 6 years old.

Trickle down economics gets a bad press but there is one form of it that absolutely works, Apple's iPhone being a very good example of it. The usual description of trickle down is as an insult--let the rich keep more of their money and it will trickle down to us poor ones. Put like that of course it's untrue and that's why no one does in fact believe the idea in the first place. What is being insulted is the idea that if returns to investment were taxed less then we might see more investment. As it is investment added to labour which drives future living standards, more investment would seem to be a pretty good idea. But if you want to mock the concept then why not just call it that trickle down?

However, there's one form of trickle down economics which is definitively true and a decade of Apple's iPhone is a good enough demonstration of that. Mark Perry tells us that the smartphone replaces many other gadgets which would be much more expensive in aggregate:

When you consider that an iPhone can fit in your pocket and has many apps and features that were either not available in 1991 (GPS, text messaging, email, Internet access, mobile access to movies, music streaming, more than two million mobile apps, iCloud access, etc.) or not listed in the 1991 Radio Shack ad (camera, stopwatch, timer, photo-editing, travel books, encyclopedia, newspaper subscriptions, dictionary, language translator, etc.), it’s amazing how much progress we’ve made in just several decades, and how affordable common electronic products have become.

Salon, of course, finds something to moan about, we don't talk to strangers as much as we used to:

Yet research has shown that this convenience may be coming at a cost. We seem to be addicted to our phones; as a psychology researcher, I have read study after study concluding that our mental health and relationships may be suffering. Meanwhile, the first generation of kids to grow up with smartphones is now reaching adulthood, and we’re only beginning to see the adverse effects.

If you hunt hard enough you can find the cloud to go with every silver lining.

My point here is rather different. It is simply that this free market capitalism is superbly good at one thing--making things cheap. In my reading that's a form of trickle down economics and it's something that's worth pointing out about the system. Yes, OK, we can take with the appropriate pinch of salt Mariana Mazzucato's insistence that really government built the iPhone:

Mariana Mazzucato has a new book out on "The Entrepreneurial State". It's making the argument that because government does indeed invent or innovate in certain sectors then we should acknowledge this and both welcome and plan for the state to take the lead in certain sectors. One of her examples is how government funded the development of certain technologies that Apple then combined to make into the iPhone.

However much, or however little, of that argument we want to accept we do have to insist that even if we accept it in toto that it was government which funded the research into the basic technologies, it was still Apple which put them together, still Apple which did the innovation.

My point here though is not about the genesis of the product but what happens to it then. As I've noted before:

The smartphone, as a viable technology, is still less than a decade old. It really started with Apple's iPhone in 2007, which went on sale for $599 in most markets (or the local currency equivalent). That, in less than a decade, we'll have smartphones of higher performance for $20 is a stunning testimony to the speed with which this trickle down effect can work.

Or to borrow from Schumpeter to make the same point:

In fact we know when QE I got her first pair of knitted silk stockings, in 1560. We wouldn't say that every factory girl had them by 1660, nor even 1760, but all could have them by 1960 and almost all by 1860. Three hundred years for a product to move from a luxury only for the very wealthiest to being a standard item for the masses doesn't sound all that good, this is true, but we can use another example from our own day. The smartphone debuted in 2008, when Apple AAPL +1.45% released the first iPhone. Priced at $599 in most markets it was very definitely a luxury item and sold like hotcakes. We're not even a decade later and phones of greater sophistication and performance can be had for $20. OK, they use Android, they don't have the build quality nor the brand. But in under a decade we've gone from a luxury item for dweebs, dorks and nerds like you and me to something withing the grasp of the vast majority of the world's population. This is why Ericsson is predicting 9 billion phone connections within the next 5 years globally.

And it is this very thing that capitalism and the associated free markets that we have in our odd blend of a politico-economic system does so well.

This system of capitalist free marketry is indeed a system that, in this sense, operates on the trickle down principle. For the great joy of the system is, after something has been invented, how damn cheap the system makes it so quickly.