The restaurant sector generates $3 trillion in annual sales worldwide, and provides employment to a vast number of individuals.[a]
Absent government intervention, the cascading economic impact from just this one sector will be enormous.
[a] https://medium.com/@CravyHQ/the-restaurant-industry-a-global...
Can someone with an economics background tell me whether this is a sound argument? It looks like it could be reasonable to me, but it also looks a lot like the examples of deadweight losses in Bastiat's "That Which is Seen, and That Which is Not Seen".
I would guess that we should count the $3T transferred as a cost on one side of the book and as a benefit on the other side, and from an accounting standpoint not care much either way. I'd also guess we should somehow try to compare the relative value of the service on each side of the transaction to gauge somw "surplus" value. People get food they value at $3.1T, and they pay $3T, and the workers would have done the job for $2.9T, so society wins by $200B in aggregate. Or something. But maybe that's nonsense?
I don't know if that's reasonable, but I am fairly convinced that we shouldn't dig $3T worth of ditches just to fill them in. That is deadweight loss.
At the very least I think we can assume that restaurants are not a deadweight loss because they're profitable, though. People often choose to pay that premium over cooking for themselves, and we should trust that those choices reflect personal relative value well.
Most people will be able to cook for themselves just fine, but by doing so they'll be saving money, which would otherwise have been spent locally. This means that that money won't go on to restaurant workers to be spent, and the remainder won't show up as profit for the restaurant. (Instead it'll go into savings, which will likely have a negligible effect at best since money is ~free to borrow these days)
Locally this will lead to a depressed demand for everything and globally lead to a decrease in paper GDP and profit for the companies (read: stonks go down).
So honestly, I would argue that paying people to dig ditches (vs do literally nothing else, though at that point you might as well just give them cash) is in and of itself beneficial, though of course less so than doing something that generates a benefit outside of that from the activity itself.
This is the point -- paying people to dig ditches breaks down into two activities:
- Paying people, which is net zero benefit. (Otherwise we could all sit in a circle and pay each other to riches.)
- Doing useless work, which is net negative. (Effort, materials and time spent that coukd have been spent on leisure or actually productive ends.)
GDP is obviously a bad measure here. For the same problem stated another way, Google and Wikipedia are free, but increase productivity and aggregate wellbeing immeasurably.
In this case, I'm arguing because of the economic class of the ditch diggers that this is not the case. The ditch diggers will spend the money locally, rather than saving it, on things that give them greater utility than what the people paying for ditches would have gotten (which is most likely just saving it).
I agree asking people to dig ditches for the money is stupid, but in reality they'd either be doing something productive that wouldn't have otherwise been done for structural reasons (building national parks, windmills, solar panels, etc., things where there is a positive externality that prevents the market from doing it) or receiving the money for free.
In the US the Fed regulates total nominal demand (= spending) in the economy. When the Fed is doing their job well, it doesn't matter for nominal spending whether any one industry, like restaurants, is disturbed or not. Or whether some industries are booming.
The Fed will just adjust how much money they are 'printing'.
But what matters are supply side factors.
All those people patronising restaurants or working there presumably did so because they preferred it to the alternative ways to spend their money or time.
After a disturbance, they will have to make do with their second (or third or fourth..) best opportunities instead.
If the disturbance was a long term shift in consumer taste, we should hasten the transition of workers out of that industry.
But the current crisis is presumably temporary. So we pay for lots of friction of adaption back and forth, just to get back to where we used to be. (The adaption is still a good idea. It's probably better for waiters to become eg Uber Eats drivers than to twiddle their thumbs.)
This money is not lost from the economy; people still have to eat after all.
I understood that in the US, waiters make fairly good money because of tipping, no? Which isn't the case of other workers though.
You do know about this thing called service sector that accounts for more than half of the economy ?