The analytical chapters in the IMF’s semi-annual World Economic Outlook were released today (outlook chapters follow next week). The topics covered were:
- Where Are We Headed? Perspectives on Potential Output This chapter finds that potential output growth across advanced and emerging market economies has declined in recent years. In advanced economies, this decline started as far back as the early 2000s and worsened with the global financial crisis. In emerging market economies, in contrast, it began only after the crisis. The chapter’s analysis suggests that potential output growth in advanced economies is likely to increase slightly from current rates as some crisis-related effects wear off, but to remain below precrisis rates in the medium term. The main reasons are aging populations and the gradual increase in capital growth from current rates as output and investment recover from the crisis. In contrast, in emerging market economies, potential output growth is expected to decline further, owing to aging populations, weaker investment, and lower total factor productivity growth as these economies catch up to the technological frontier.
- Private Investment: What’s the Holdup? Private fixed investment in advanced economies contracted sharply during the global financial crisis, and there has been little recovery since. Investment has generally slowed more gradually in the rest of the world. Although housing investment fell especially sharply during the crisis, business investment accounts for the bulk of the slump, and the overriding factor holding it back has been the overall weakness of economic activity. In some countries, other contributing factors include financial constraints and policy uncertainty. These findings suggest that addressing the general weakness in economic activity is crucial for restoring growth in private investment.
Here’s irony for your post-NCAA day, a bunch of poor Vietnamese refugees from Communism discover the Soup Nazis in the City by the Sound;
http://www.seattletimes.com/opinion/to-see-the-effects-of-the-minimum-wage-hike-follow-the-pho/
—————-quote———–
Quynh-Vy Pham’s family owns four Pho Bac restaurants in the city. Her parents opened the original shop at the corner of South Jackson Street and Rainier Avenue South in 1982.
Pham says they will hold on to current prices — $7.75 for a small bowl, according to the restaurant’s website — as long as possible. Like so many others pho proprietors, their restaurant is not designed to be an Ethan Stowell or Tom Douglas establishment where customers expect to pay premium prices.
“It’s hard for people to pay $15 for a ‘to pho,’ ” Pham says, referring to the Vietnamese translation of a bowl of soup. “The culture of Vietnamese restaurants means we have to be price aggressive.”
Pham says they are considering scaling down employment, possibly ending sit-down service and transitioning to a “fast-casual” concept to cut down on labor costs.
—————–endquote————-
Hey, now there’s an example of price elasticity a UW prof could use in the classroom. Another Seattle restaurateur chimes in;
—————–quote————-
To reduce expenses, Hoang is considering making their meatballs in-house using machinery rather than the handcrafted meatballs they commission from a local producer. Same goes for the tofu and hand-sliced rare steak.
‘“There are different ways we can cut our costs. At the same time, that’s going to trickle down to supporting businesses,” she says.
————–endquote———-
Of course the Vietnamese warned the Mayor about this repurcussion from his ‘caring’, but he wouldn’t listen. ‘No soup for you!’
Patrick R. Sullivan: You write as if I don’t understand the difficult times of low-cost restaurants. Actually, I understand the issue from both sides; my father was at one time a part-owner, and at one time an employee of such kinds of restaurants. I don’t think he took the same one-sided moralistic, hyperbolic, view of the issue. So you will excuse me if I don’t take your selective quotes as decisive evidence. (Ever think of not arguing by anecdote?)
And when you’ve stopped shedding your crocodile tears, why don’t you take the opportunity to admit you were in error regarding depth of the downturn in Canada vs. US during the Great Depression. As you recall, you stated unequivocally:
And this statement is wrong.
‘ I don’t think he took the same one-sided moralistic, hyperbolic, view of the issue.’
I’m taking the economist’s view of the issue. The one that says there’s no such thing as a free lunch. The moralistic, one sided view is nicely represented by the Mayor of Seattle. Of course, I’d be disappointed if you ever understood that, Menzie.
Patrick R. Sullivan: Then why don’t you do your analysis like an economist, instead of a polemicist, relying on the one or two stories that fit your narrative.
By the way, have you ever heard of the term “Pareto improvement”? I suspect not, since you do not apparently have any acquaintance with the first and second welfare theorems…
In that regard, I am still waiting to hear you admit you were in error regarding depth of the downturn in Canada vs. US during the Great Depression. As you recall, you stated unequivocally:
And this statement is wrong.
‘Then why don’t you do your analysis like an economist, instead of a polemicist, relying on the one or two stories that fit your narrative. ‘
Otherwise known as providing real life examples of the theories that economists teach to their students from textbooks. In this case, not a ‘theory’, but a much stronger ‘law’ (of demand). You might try it sometime yourself, Menzie, rather than exclusively using your talent manipulating numbers to deny economic reality.
Btw, I’m curious, since you claim to be so aware of the problems of small restaurateurs, which of your posts here at Econbrowser, in your humble opinion, best demonstrate that awareness? Even one?
Patrick R. Sullivan: Well, if one leavened one’s discussion of analytical and empirical models with some examples, that’s something a good economist would do. If one only used anecdotes and clearly falsifiable interpretations of the data, well then that is not conduct becoming a real economist.
That last point leads to this: I am still waiting to hear you admit you were in error regarding depth of the downturn in Canada vs. US during the Great Depression. As you recall, you stated unequivocally:
And this statement is wrong.
The vietnamese Restaurant menue (including prices) from Germany, with a minimum wage of 8.5 Euro = 10.3 $
http://www.haiau-dresden.de/index.php?page=speisen-catering
Driving out the costs is the continous productivity improvement process which is part and parcel of the industrial revolution
@ Menzie Chinn
The times they are are changing. There is so much money sloshing around, that
Germany is now taking a DEPOSIT FEE (negative interest rate) of 1.09% per YEAR , just to store your worthless money safely and inflation protected for 10 years
https://www.bundesbank.de/Redaktion/EN/Downloads/Press/Pressenotizen/2015/2015_04_07_auction_result.pdf;jsessionid=0000dVNWLxZ8O_M9DPoWdn48WS0:-1?__blob=publicationFile
genauer: Es sieht gut aus! Und es kostet nicht viel. Danke!
Yes, the prices are good. I noticed that as well in Holland a while back – expected terrible prices but they were not bad.
The euro is down to $1.08, genauer. Anyway, the new German law has quite a few exceptions, the long term unemployed, the young (under 18), trainees;
http://www.euractiv.com/sections/social-europe-jobs/merkel-cabinet-agrees-eu850-minimum-wage-301349
‘”The minimum wage is coming, that is the good news”, said Brigitte Pothmer, Green Party spokesperson for labour market policy.
‘ “The bad news is: it does not come for all but rather as a two-class system because Minister Nahles’ draft law presents clear deficiencies. There are significant gaps that threaten comprehensive protection for workers against wage dumping,” Pothmer said.’
Btw, interest rates are NOT the price of money. So, this is a fallacy;
‘There is so much money sloshing around, that
‘Germany is now taking a DEPOSIT FEE (negative interest rate) of 1.09% per YEAR , just to store your worthless money safely and inflation protected for 10 years’
If money is worthless why would someone pay to store it, wouldn’t you just leave it in a box in the back yard?
Patrick R. Sullivan: Re: “Btw, interest rates are NOT the price of money.”
Better go edit the Wikipedia page.
By the way, I am still waiting to hear you admit you were in error regarding depth of the downturn in Canada vs. US during the Great Depression. As you recall, you stated unequivocally:
And this statement is wrong.
‘Better go edit the Wikipedia page.’
Now there’s a professional response! Am I to take from this that you, Menzie Chinn, entrusted by the state of Wisconsin with the job of molding young minds, DOES believe that ‘interest rates are the price of money’?
Patrick R. Sullivan: Well, I’d say it’s the intertemporal opportunity cost of money, but in a pinch, that’d do. Check a textbook (unless that action would make your hands burn).
I am still waiting to hear you admit you were in error regarding depth of the downturn in Canada vs. US during the Great Depression. As you recall, you stated unequivocally:
And this statement is wrong.
Eh.
Were demographic factors not possible to anticipate? Should have been. But what is not, of course, are things like labor force participation. On the other hand, that suggests that labor force participation could change to the upside, as well.
As for investment, that too will recover. The JOLTS data clearly suggests it for the US, and the US is leading the world.
By the way, expect the horizontal oil-directed rig count to bottom this month near current levels. In other words, the driver for oil sector layoffs (in US onshore) will be gone by late May. Employment will stabilize or begin to recover by late spring.
For offshore, the matter is different. The beatings will continue until oil prices will improve. They just canceled the Offshore Norway oil and gas trade conference, which had 1300 exhibitors and 92,000 visitors in 2014. That’s bad. The Norwegian economy is going to struggle.
In any event, expect a solid year from the oil importing countries, particularly in the OECD.
“Fair value” of the Euro is 1.2 Dollar, around which it oscillates in about 15 year cycles. I expect to see parity in about a year.
@Patrick,
you shouldn’t believe everything an unknown 3rd tier politician of a marginalized opposition “Green” party claimed a year ago, before the minimum wage law was voted on, in an outlet no German reads.
The exceptions are actually pretty strict (http://www.bundesregierung.de/Content/DE/Artikel/2014/07/2014-07-03-mindestlohn-bundestag.html) and very close to what the rest of Europe is doing (we do not need to reinvent the wheel here, but can copy tried stuff from others) The Green party has lost their ecologic bread and butter topic, Germany now has already so much photovoltaics, to drive hourly electricity rates negative in summer.
The Green party was behing the curve on everything else, like forcing a vegetarian day per week on the population !, raising income and establishing (!) wealth tax, at a time the rest of the world already goes crazy over our balanced budget. We are on track to have the government debt down to the target 60% in less than 4 years, according to the IMF , in stark contrast to the US debt saturating at 105% GDP, and to actively destroy “unneeded” infrastructure like underused rural streets-
No wonder that the ruling “Grand Coalition” in Germany has 80% of the vote, record approval rates internally and abroad “BBC: Germany is the most popular country in the world”
@ Menzie Chinn
I brought that special bond , because of
a) the fundamental question is how low can negative real interest rate go, before you get what kind of drastic action by whom? 2% , 3%, 4% ? over 5, 10 years ? Why ? When?
b) how much does what we do here in Europe / Germany impact exchange rates, and interest rates in the US, and their interpretation.
The food comparison I brought, because that is also a long standing observation that is is significantly more expensive in the US.
‘Well, I’d say it’s the intertemporal opportunity cost of money, but in a pinch, that’d do. Check a textbook (unless that action would make your hands burn).’
Better yet, I’ll consult a Nobel Prize winning economist (and author of a text book on price theory), who had occasion to address the issue when he engaged in a famous debate at NYU in 1968, with Walter Heller. The former Chairman of the CEA had claimed that interest rates were the price of money, but was corrected;
‘The interest rate is the price of credit. The price of money is how much goods and services you have to give up to get a dollar. ….
‘…the price of money…in the inverse of the price level–not the interest rate.’
You’ll find that on pp. 74-75 of ‘Monetary vs. Fiscal Policy’. Don’t burn your hands.
Patrick R. Sullivan: That’s why I added the polysyllabic word “intertemporal”, in my preferred definition — perhaps you need to look that up.
By the way, you still need to look up some numbers, as I am still waiting to hear you admit you were in error regarding depth of the downturn in Canada vs. US during the Great Depression. As you recall, you stated unequivocally:
And this statement is wrong.