Did Apple (AAPL) Ease Monetary Policy?

Matt Yglesias seems to think the answer is yes:

When nominal interest rates on the safest forms of debt hit zero, extra savings can’t push rates any lower to spur new borrowing. They can’t, at least, unless the Federal Reserve is willing to take some risks rather than stick with its current policy of guaranteed mass unemployment as preferable to the risk of embarrassing itself by trying something new. That means that when extra cash ends up in an already stocked corporate treasury, it does just pile up pointlessly. The same thing happens when oil exporting countries recycle their earnings from higher gas prices into American sovereign debt. During this anomalous period of zero interest rates, corporate cash stockpiling really does hurt the broader economy. And Apple is far and away the king of the cash stockpile, representing fully 36 percent of the $179 billion increase in U.S. corporate cash that we’ve seen since 2009. In fact, in 2011 the non-Apple part of corporate America stopped stockpiling and reduced its cash holdings by $6 billion. This was, however, more than offset by Apple’s addition of $46 billion to its own stockpile.

In other words, every decision to buy an iPad rather than a sofa has been hurting the American economy. The $10 billion in share buybacks and $10 billion per year in dividends announced today is good news for the American economy.

This seems mostly wrong to me.  I certainly approve of the cash dispersion, as the principle-agent problem suggests that highly successful corporations will be tempted to waste their cash hoards on boondoggle investments.  So it may be good for the economy.  But I don’t see how it does much for the zero bound problem.  At least I don’t see any first order effects.  If Apple (AAPL) saves less I’d expect the recipients of this money to increase their saving my an equal amount.  After all, if an Apple-owner wanted to get their money back they always could sell 2% of their stock each year, and increase consumption.  Perhaps dividends are slightly more liquid, but many people own mutual funds that automatically re-invest the dividends.  Those rich enough to own individual shares often have brokerage accounts where the dividends automatically spill into a money market mutual fund.  If at the end of the month you have a tiny bit more in the MMMF, and a tiny bit less in Apple stock, but the total of the all assets remains exactly at say, $857,000, are you really going to spend more on consumption?  I don’t see it.

That’s not to say Yglesias is completely wrong, anything that makes our economy more efficient will tend to slightly speed up the time when we exit the zero rate bound on interest rates.  I just don’t think the Keynesian “savings” framework is a useful way to think about the issue.

About Scott Sumner 492 Articles

Affiliation: Bentley University

Scott Sumner has taught economics at Bentley University for the past 27 years.

He earned a BA in economics at Wisconsin and a PhD at University of Chicago.

Professor Sumner's current research topics include monetary policy targets and the Great Depression. His areas of interest are macroeconomics, monetary theory and policy, and history of economic thought.

Professor Sumner has published articles in the Journal of Political Economy, the Journal of Money, Credit and Banking, and the Bulletin of Economic Research.

Visit: TheMoneyIllusion

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