Felix Salmon

Does John Boehner know what paychecks are made of?

Felix Salmon
Jul 8, 2011 13:25 UTC

It’s incredibly difficult to work out what is the most depressing part of today’s truly gruesome jobs report. The shrinking number of people in the labor force? The rise in U-6, broad underemployment, to 16.2%? The sharp spike in the newly unemployed? The downward revisions to April and May? The downtick in total hours worked? Maybe it’s the way that people leaving government jobs, for whatever reason, are finding it impossible to find new jobs in the private sector.

For me, it’s none of these things — it’s not, in fact, anything inside the report at all. Instead, it’s the reaction to the report from John Boehner:

“The American people are still asking the question: where are the jobs? Today’s report is more evidence that the misguided ‘stimulus’ spending binge, excessive regulations, and an overwhelming national debt continue to hold back private-sector job creation in our country. Legislation that raises taxes on small business job creators, fails to cut spending by a larger amount than a debt limit hike, or fails to restrain future spending will only make things worse – and won’t pass the House. Republicans are focused on jobs, and are ready to stop Washington from spending money it doesn’t have and make serious changes to the way we spend taxpayer dollars. We hope our Democratic counterparts will join us and seize this opportunity to do something big for our economy and our future, and help get Americans back to work.”

Opinions of the budget deficit and the national debt differ — some people think they’re a huge and important issue which needs to be dealt with in an urgent and serious way, while others think that the whole issue is overblown and that the debt is doing little if any harm at all to the US economy. But whichever side you stand on that debate, it’s downright bonkers to think that, at the margin, government spending reduces job creation, while pushing for ever-larger spending cuts is the way to be “focused on jobs”.

As Paul Krugman has explained extremely well, the economics of the deficit are not entirely obvious, and the president is no natural Keynsian.

The president just doesn’t like the kind of people who tell him counterintuitive things, who say that the government is not like a family, that it’s not right for the government to tighten its belt when Americans are tightening theirs, that unemployment is not caused by lack of the right skills. Certainly just about all the people who might have tried to make that argument have left the administration or are leaving soon…

To commenters saying that I need to have dinner with the president, or vice versa — been there, done that, didn’t help.

But if Krugman’s Keynsianism is unintuitive, the Republican stance on jobs is downright incomprehensible. Paychecks are made of money: they’re spending. If you spend less, you get fewer and smaller paychecks.

“Spend less money, create more jobs” is the kind of world one normally finds only in Woody Allen movies, and it’s a profoundly unserious stance for any politician to take. Spending cuts, whether they’re implemented by the public sector or the private sector, are never going to create jobs. And there’s simply no magical ju-jitsu whereby government spending cuts get reversed and amplified, becoming larger private-sector spending increases.

Boehner’s rhetoric, here, is a cynical play on our nation’s economic illiteracy. But the jobs crisis is far too big and too important to become a tactical political football. Now more than ever, it’s the job of government to come together and to do something constructive to create high-quality, long-term employment. Fast. Instead, the House majority is giving us aggressively harmful stupidity. Today’s a bad day in the annals of job statistics. But it’s equally bad in the annals of public service.



BP and fracking and the enviroment are of concern to everyone, myself included, that’s why oil drilling and shale gas exploration are heavily regulated. I’m not for one instant saying that they should be unregulated.

I was challenging the obvious fallacy that regulations don’t affect investment and employment.

In some instances regulation might actually increase employment. In my state they have reduced the number of lobster traps allowed per lobster licence several times. This has allowed more people to make a living in the lobster business at the expense of the really ambitious hard working lobstermen that use to fish 16 hours a day 6 days a week.

@DanHess total kudos to your ideas. I agree with your assessment that energy scarcity will dwarf all current issues much sooner than many expect. Lets change some regulations and put wind turbines up in all but the most critical envriomental areas of my state and solar farms in all but the most critical areas of the arid southwest.

Posted by y2kurtus | Report as abusive

Can employment ever catch up with productivity?

Felix Salmon
Jun 22, 2011 18:19 UTC

I moderated a panel on financial innovation yesterday, about which more when I get the video. But there was a lot of talk of leverage, which is the hidden turbo-charger in a lot of financial innovations, from credit default swaps to structured investment vehicles. And there was a general consensus that if you want to create prosperity and jobs, then leverage is in principle a good thing: more debt means more growth which means more prosperity. For a prime example, see this post from Gregory White, who reckons that whenever household debt is going down rather than up, “the economy will stink.”

In reality, however, things are rather more complicated. And Jared Bernstein has a great post up explaining one of the big problems: Over the past 30 years or so, unemployment has been high, compared to the previous 30 years, when unemployment was low. When unemployment is low, productivity gains go to labor; when unemployment is high, they go to capital. And that’s a big reason why median family incomes have been massively lagging productivity growth since 1979, even though the two moved pretty much in lockstep during the postwar period.

The challenge I put to the panel yesterday was to come up with an innovation which produces more growth with less leverage, after an entire generation in which debt has been growing much faster than GDP. Better yet, come up with an innovation which produces more jobs with less leverage. We still have healthy productivity growth. How do we channel that into employment, rather than dividends for plutocrats? The fund managers and CEOs on my panel weren’t much help on that front. But that’s the real challenge facing developed economies today, and I suspect that if we look at Germany, we might be able to find a few clues.


Having moved from Australia to Germany almost 2 years ago the main differences that Felix might be referring to:

- a strong school education system with equivalent quality universities (that don’t leave students with crippling debts) or pervasive apprenticeships (in all industries, not just traditional “hand work” ones)

- a distaste for debt. People here prefer cash (or the electronic version thereof) and it’s quite common to be unable to use a credit card. A modest mortgage is the limit most people undertake and unmanageable credit card debts are a rarity. This seems to extend to companies too which leads me to…

- a preference for organic growth. The Mittelstand are mentioned so often because these are small-medium companies who punch above their weight in their respective markets but still maintain a focus on longevity all the while compensating all employees generously. In most cases they avoid taking on debt which allows them to ride out cyclical events better although they do get some help from…

- government initiatives like “kürzarbeit” (literally “short work”) helps to smooth out the impact of the business cycle on employment. Businesses reduce hours instead of laying people off and employees get some assistance from the government. The business wins by retaining skilled staff, the employees win by not being laid off and the government wins by spending less than full unemployment benefits.

Posted by MartinBarry | Report as abusive

Charts of the day: The rise in structural unemployment

Felix Salmon
Jun 20, 2011 18:28 UTC

Is this jobless recovery a peculiarly American phenomenon? This chart, from a new paper seeking to unentangle cyclical from structural unemployment, would suggest that it possibly is:


I find these numbers quite shocking: after all, it’s hardly as though countries like the UK and Portugal have emerged from the recession unscathed. But the US increase in unemployment over the course of the recession was more than double the increase anywhere else.

That said, the US has historically has a much lower rate of structural unemployment than most of these other countries: the level of unemployment which is baked in to economic reality, before cyclical factors move it temporarily up and down. And what I fear is that the Great Recession has moved the US towards European levels of structural employment, without any kind of Euro-style social safety net.

Here are the charts for what’s happened to structural unemployment in the US. The red lines are the official employment rate; the blue lines are the structural employment rate. The first chart shows the unemployment rate overall; the next four break it down into people unemployed for less than five weeks; people unemployed for between five and 14 weeks; people unemployed for between 15 and 26 weeks; and the long-term unemployed who have been out of work for more than six months.


What’s going on here is pretty clear. For short-term unemployment, little has changed: the structural rate has been around 2% for decades. But look at any of these charts and they show structural unemployment at an all-time high, with the situation getting much worse the longer the duration of unemployment. Overall, the structural rate of unemployment is now more than 8%, which means that we’ll only dip below that level temporarily, during cyclical upturns.

Measuring structural unemployment is, of course, more of an art than a science, and I’d be astonished if any economist agreed with all of the figures in this paper. That said, it’s entirely intuitive to believe that structural unemployment rose significantly over the course of the recession, and that it’s now painfully high. And that the Obama Administration is, to a first approximation, doing absolutely nothing to address this crisis head-on.


“America no longer has much work for someone who hasn’t gone to college, but has a strong back and strong muscles and is willing to work hard.”

Unless you’re an illegal alien, in which case you are one of the Chosen People.

By the way, America no longer has much work for people in a lot of white collar professions as well.

Posted by lsjogren | Report as abusive

When will incomes return to their 2006 level?

Felix Salmon
Jun 9, 2011 16:41 UTC

What happens if, instead of measuring GDP by adding up all the money spent in the country, you measure it by adding up all the money earned in the country? Theoretically, the two measures are identical, but in practice, there can be differences. Justin Wolfers has this chart:


The red line, here, is a more reliable measure of national income than the blue line, which is the official GDP number. And it gives a sobering indication of just how devastating the Great Recession was: a drop of more than 7% in real GDP per capita between the end of 2006 and the end of 2009, with most of that decline taking place before the collapse of Lehman Brothers and the subsequent financial crisis.

Writes Wolfers:

It’s going to take a long while to return to where we were back in 2006. Most forecasters are expecting GDP to grow by around 3 percent, implying per-capita growth closer to two percent. At those rates, average incomes in 2013 will (finally!) be back around the levels of 2006.

I’d note that “average”, here, refers to the mean, not the median. The effect of Ben Bernanke’s monetary policy has been to funnel large amounts of income to bankers and plutocrats, even as the employment situation remains woeful, so you can be sure that median incomes are going to take significantly longer to return to their 2006 level than mean incomes. They’ll get there eventually, I’m sure. But it could take a decade.


If you go to BEA.gov they have all of the gdp, income and corporate profits numbers. The Brookings paper is explaining why earlier estimates of GDP calculated from income data ended up being a better predictor of actual GDP than the early estimates of GDP based on expenditures. So basically it’s better at producing a more accurate delta in the short term, less accurate in overall sizing with more time and data to get expenditure data. And one of the main data points they have is that trend growth of GDP (i) was more accurate in the late 1990s when early GDP (e) numbers were underestimating growth. Still just because this trend was true in the past doesn’t mean it will continue to be true in the future, in this case hopefully the GDP (i) numbers have been underestimating growth and overestimated the decline.

Posted by tuckerm | Report as abusive

Chart of the day: GDP growth and volatility

Felix Salmon
Jun 8, 2011 19:09 UTC

Alan Taylor has one of those op-eds today which is crying out for a chart. He’s comparing DMs, developed markets, to EMs, emerging markets*:

A central macroeconomic indicator, gross domestic product growth and its volatility, speaks to the reversal of fortune. Circa 1970, EMs exhibited high mean and high variance relative to DMs; but after 1980 this risk-reward combination evaporated as EMs suffered a lost decade. But from the 1990s EM growth picked up and volatility moderated; DM growth slowed and, after the crisis, volatility spiked.

What does this look like in graphical form? Here’s the chart, which is taken from a recent Morgan Stanley research report:


As with any chart where time isn’t on the x-axis, this is very interesting and also takes a little time to fully comprehend. Basically, if you look at the DM line — that’s the dark blue one, representing developed economies — you see average growth rates declining steadily all the way from 1980 through the present day. That was something we accepted during the Great Moderation, kidding ourselves that even though we weren’t growing as fast as the emerging world, at least we were growing with very low volatility.

Then the crisis hit, and GDP volatility hit levels unprecedented in recent economic history, at least in the developed world, with standard deviations moving up towards 3 percentage points.

Meanwhile, the emerging world has a much higher mean growth rate — around 9%, compared to the developed world’s 3.5% or so — which has been rising steadily in recent years even as volatility in that growth rate has declined towards developed-world levels. Emerging-market GDP volatility isn’t yet lower than developed-world GDP volatility, but it’s close. And given the tiny difference in volatility, the enormous gap in absolute size is all the more striking.

This chart, in a nutshell, explains why American companies are all falling over themselves to make inroads in China, and other emerging markets. They’ve had strong growth for a while, but now they’re pretty stable, too. Here’s Taylor, again:

What would have been your reaction, circa 2006, to someone peddling the following forecast? There would soon erupt the worst, synchronised global financial crisis in 80 years, or possibly ever. World trade would start to collapse as fast as in 1929-31. Many developed markets (DMs) would experience deep recessions, the costliest banking crisis ever and would stagger toward fiscal calamity. But – guess what! – emerging markets (EMs), after a brief panic, would sail on unscathed. They would have no significant crises: currencies, banks and fiscal positions would retain stability. A two-track recovery would take EM growth on to a trajectory away from a troubling slump in the DM world.

That world might not have seemed likely five years ago. But it’s the world we’re living in today. And it’s the base case scenario for the foreseeable future, too.

*Update: In response to inboulder, in the comments, here’s the list of the countries used, from page 11 of the PDF:

List of EM countries and ISO codes: Taiwan (TWN), India (IND), Indonesia (IDN), Korea (KOR), Malaysia (MYS), China (CHN), Singapore (SGP), Hong Kong (HKG), Thailand (THA), Brazil (BRA), Mexico (MEX), Peru (PER), Colombia (COL), Argentina (ARG), Venezuela (VEN), Chile (CHL), Russia (RUS), Poland (POL), Czech Republic (CZE), Hungary (HUN), Romania (ROU), Ukraine (UKR), Turkey (TUR), Israel (ISR), SA (ZAF).

List of DM countries and ISO codes: United States of America (USA), Germany (DEU), France (FRA), Italy (ITA), Spain (ESP), Japan (JPN), United Kingdom (GBR), Canada (CAN), Sweden (SWE), Australia (AUS), New Zealand (NZL), Austria (AUT), Belgium (BEL), Denmark (DNK), Finland (FIN), Greece (GRC), Iceland (ISL), Ireland (IRL), Luxemburg (LUX), Netherlands (NLD), Norway (NOR), Portugal (PRT), Switzerland (CHE).


I’m still curious about the formula of GDP Volatility. Is the formula lagged variable from spesific period? If we count the GDP volatility of country in period, does it mean we will have one value? or variate values of years?

Posted by Vinland | Report as abusive

A weaker dollar doesn’t mean you’re earning less

Felix Salmon
May 5, 2011 21:54 UTC

Matt Yglesias says that there’s no difference between currency depreciation and real wage cuts:

Your wages are denominated in dollars, so if the value of a dollar declines your real wages decline. Currency depreciation isn’t an alternative to real wage cuts, it’s a mechanism by which real wages can be cut.

This isn’t really true, unless you’re being paid in dollars and living abroad. On a trade-weighted basis, the dollar has declined by about 11% in the past 10 months or so. Does that mean that my real wages have fallen by 11% in less than a year? Should responsible employers wanting to keep their employees’ wages constant on a real basis have given them all an 11% pay hike in dollar terms? Of course not.

In order to convert nominal dollars into real dollars, you use inflation, not any change in the value of the dollar. When the dollar depreciates, sometimes that shows up in inflation — and sometimes it doesn’t. After all, the dollar has been depreciating pretty steadily for a decade now, without any sign of inflation picking up.

What a cheaper dollar does do is make US workers cheaper relative to their foreign competitors. That doesn’t mean those workers are taking a real wage cut, any more than productivity increases are real wage cuts. But it can still improve the quality of life here in the US. The Treasury secretary loves to intone that a strong dollar is in the national interest. And maybe in some senses it is. But in other senses, a weak dollar can be very useful indeed for boosting employment and growth.


Seems to me you are both correct…

A falling dollar will increase the cost of imported goods, but that is only a small piece of GDP. Most of our economy is domestic and unaffected by exchange rates. Notable exceptions are energy (largely imported) and food (enjoys a strong export market).

If we’re worried about the rising food prices, we can stop turning corn into ethanol.

Posted by TFF | Report as abusive


Felix Salmon
May 4, 2011 18:23 UTC

18 months ago, Groupon didn’t exist. Today, it has over 70 million users in 500-odd different markets, is making more than a billion dollars a year, has dozens if not hundreds of copycat rivals, and is said to be worth as much as $25 billion. What’s going on here? There’s obviously something clever and innovative behind Groupon — but what is it? Given that customers with Groupons are saving lots of money on goods and services, how can this possibly be good for merchants? Is there a catch somewhere? Is TPG’s David Bonderman right when he says that “Groupon doesn’t do anything that four of us with a phone couldn’t do”? Or is there actually something very special about the company?

Bonderman’s thesis is basically that the value of Groupon lies in the company’s business model, and that since barriers to entry are basically zero, there’s therefore no value there. But I don’t buy that. There are significant network effects at play here: the more people Groupon signs up, the more targeted its deals can be. And there’s another social aspect to Groupon’s success I’ll come to in a minute.

But first it’s worth looking at the innovation in the name of the company: the idea that coupons only become activated once a certain minimum number of people have signed up for them. This is essentially a guarantee for the merchant that the needle will be moved, that their effort won’t be wasted. With traditional advertising or even with old-fashioned coupons, a merchant never has any guarantee that they will be noticed or make any difference. But with a Groupon, you know that hundreds of people will be so enticed by your offer that they’re willing to pay real money to access it. That kind of guaranteed engagement is hugely valuable, and more or less unprecedented in the world of marketing and advertising.

Then there’s the twist in the “coupon” part of the name. No longer do merchants pay money for the privilege of giving coupons away for free in local newspapers. Instead, they receive money — half of the total paid up front. There’s something extremely gratifying about being paid to offer discounts to new customers.

But there’s a lot more to Groupon than just groups and coupons. Groupons behave differently for different types of merchants, so let’s just look at one sector, which I think is Groupon’s biggest: restaurants. (One of the reasons that OpenTable’s share price is so high is that there’s a lot of hope it’s going to make serious inroads into this space, where it has certain advantages over Groupon, like being able to target people according to where they’ve eaten in the past.)

The most important aspect of a restaurant Groupon is probably that it’s local. Before Groupon came along, there was no effective way for merchants to reach consumers in their area, while excluding everybody else. If you’re a neighborhood restaurant, you don’t want to entice people who live miles away: you want to reach locals. And while Groupon isn’t quite there yet — especially in New York, where a restaurant more than a few blocks away can feel like a schlep — it’s orders of magnitude better at targeting than anything which came before it. And it’s improving every day.

(Incidentally, one of life’s great mysteries is why the New York Times is spending tens of millions of dollars building and promoting its easily-circumventable paywall, when it could have built a first-rate Groupon clone instead. The NYT has the exact home addresses — and the associated email addresses — of hundreds of thousands of well-heeled newspaper subscribers in a rich city of tiny neighborhoods. It also has a sales force which talks to local businesses regularly. It should own this space in New York City, instead of ceding it to arrivistes from Chicago who have much less specificity as to where exactly their subscribers live.)

Beyond that, there’s an uncommonly large number of ways in which participating in a Groupon deal can benefit a restaurant or other merchant. For one thing, the offer will go out to a targeted group of people in exactly your neighborhood — which means that even if none of them sign up for the deal, they’ll still have seen customized advertising for you, from a company (Groupon) which they trust.

And when a few hundred people have signed up for your deal, you get a huge amount of mindshare from them. Many will redeem the Groupon very quickly, but a lot of them will wait a while, thinking about you in the back of their minds all the time. If a friend asks whether they know a good local restaurant, they might well think of your name even if they haven’t been yet. And after they’ve been, they know exactly where you are and what you serve — information which you want locals to know but which can be very hard to broadcast.

More generally, of course, Groupons provide an important nudge to jolt people out of their day-to-day habits and try something new. A lot of us might see a new place open up and think to ourselves that we should try it some time; a Groupon turns that vague sense into something we really must do if we don’t want to lose the money we spent on the Groupon. By forcing people to pay for their Groupon, restaurants lock in new customers in a way that old-fashioned coupons never could.

In that sense, from the consumer’s perspective, a Groupon is a commitment device: it’s a way of forcing yourself to do something you really want to try at some point, but know that you might otherwise never get around to. The merchant persuades the consumer to make that commitment right now by making sure that the offer only lasts a very short time — usually only a day or two. The consumer knows that if they don’t buy the Groupon now, they’ve missed their chance.

Groupons can very good at driving traffic during slow periods: I spoke to Will Sanders, of Giorgio’s of Gramercy, and he told me that he timed its Groupon “to create a surge of business in an otherwise soft couple of months after the holidays.” For any kind of business which needs a certain amount of volume to keep ticking over in fallow times, Groupons can be exactly what the doctor ordered.

And although Groupons can be very deeply discounted, merchants can still make money on them. Indeed, in one survey by Utpal Dholakia of Rice University, 66% of merchants offering a Groupon said that the offer was profitable for them in and of itself — not including any subsequent repeat business from new customers.

At Giorgio’s, for instance, diners paid $15 for their Groupon — which gave them $30 of food. But dinner for two at Giorgio’s, with some kind of alcohol, can easily run to $100 or more. So even after knocking $22.50 off the bill (remember that Giorgio’s kept $7.50 of the proceeds of the Groupon), the restaurant would often still make money.

According to one Groupon survey, diners spending their Groupon at a restaurant averaged a check 80% greater than the face value of the Groupon itself. That’s no coincidence: the value of a Groupon is — or should be — carefully calibrated so that it’s hard to spend just the Groupon with no extra cash on top.

Merchants who get that calculation wrong can suffer greatly as a result: if you sell goods for $40, and you send out a Groupon offering $40 of goods for $20, then you’re likely to lose a lot of money very quickly. On the other hand, if your goods cost $100 on average, then you can make money on every redemption.

Does this mean that from a consumer point of view, we should look for deals where we can spend only the amount of the Groupon, and nothing more? Certainly that’s the route to greatest savings, on a percentage-of-total-spend basis. But that doesn’t mean it’s the sensible thing to do.

After all, if you spend good money on a Groupon and then have a meal you don’t like, that’s never going to be much of a bargain. On the other hand, if that Groupon helps you to discover a new neighborhood gem where you go on to become a regular, then that’s a genuine and highly valuable service that it has performed, no matter how much money you spend on your first visit.

If you’re already a regular somewhere, of course, then buying its Groupon is a no-brainer. And the restaurateur won’t begrudge you the savings, either: all restaurant owners want to treat their regulars as well as they can.

But if you don’t know exactly what you’re getting, then the risk is higher — and it’s not just the risk that you won’t like your meal. There’s also the risk of the restaurant being overcrowded with newbies bearing coupons — for that reason, it might be a good idea to wait a couple of weeks before redeeming your Groupon. On the other hand, there’s the opposite risk that your Groupon will expire unused, as you always mean to get around to redeeming it but never do. In which case it’s wasted money for you, and the restaurant doesn’t even get the opportunity to show you what it’s capable of. The only real winner in this case is Groupon itself.

Groupons are particularly attractive for restaurants, where the fixed costs are reasonably high and the profits start arriving only when you reach a certain level of volume. For merchants, by contrast, the deals can be less good: if you’re a bookstore, say, there’s a real risk that people will redeem their Groupon once, with the bookseller losing money on the transaction, and then simply revert to ordering books on Amazon thereafter.

On the other hand, as Giorgio’s Sanders notes, Groupons don’t work for all restaurants. “There are questions of prestige,” he says. “For Daniel, it would raise questions. For us, we’re a neighborhood restaurant, so it works well.”

Which brings me to the other important social aspect of Groupon’s success. For all that digital-marketing types love to talk about creating viral social-media campaigns and the like, social media is at heart a fantastic way for companies to compete on quality rather than marketing glitz. Social media is all about turning word-of-mouth into a tool which is much more powerful than it has ever been from a marketing perspective. And the best way to get great word-of-mouth is to deliver fantastic service. For a small company or even a large company which is great at what it does and never does any marketing per se, social media is a godsend.

And when it comes to the Groupon space, the quality and sophistication of the Groupon or Groupon clone matters a great deal. (One of the downsides, to a merchant, of running a Groupon is that the owners are then inevitably pestered by dozens of Groupon clones, all trying to sell a similar service.)

Groupon’s CEO, Andrew Mason, attributes his company’s success not to the genius of the idea itself, but rather to Groupon’s ability to execute — to keep both consumers and merchants happy. According to Groupon spokeswoman Julie Mossler, more than 95% of merchants would run their deal again or recommend Groupon to a fellow merchant. (Dholakia’s numbers are lower, but still high.) Keeping that number high is not easy: the company needs to be able to give good quantitative advice to merchants on issues such as where to price the Groupon, where to set the minimum and maximum number to be sold, how to avoid being overwhelmed by a huge influx of bargain-hunters, and the like.

It’s very easy to screw up these things, and if Groupon and similar companies like Gilt Groupe end up having a lot of long-term success, it will be because they put enormous amounts of effort into ongoing customer service, rather than just putting four sales guys in a room with a telephone and putting them on commission. Those brands will get slaughtered by the social-media word-of-mouth machine.

In the popular imagination, then, the idea behind a Groupon is that it attracts new customers to a restaurant, some of whom become regulars and therefore very profitable. Long-term profits from the few, in this model, make up for short-term losses from the many who will never return.

And that is indeed a central part of how Groupon works — it’s just not the only way that restaurants get value from the site. In that sense, restaurants are much like Groupon itself. It makes money on every sale — but it will only see its margins start to rise impressively if and when its merchants start coming back on a regular basis. At that point, the cost of setting up and selling a new deal comes down dramatically, and Groupon’s profits on the deal — after accounting for the cost of their salesperson’s time — rise substantially. Groupon itself, as much as its merchants, is counting on repeat business. And that comes from having a positive reputation which can spread like wildfire over Facebook and other social networks.



Ich mag dieses Artikels, sind besonders gut.
Prada taschen

chanel Cambon

Posted by Daliena | Report as abusive

The real reasons for the dollar’s decline

Felix Salmon
May 4, 2011 01:24 UTC

Have you seen what’s happened to the dollar of late? It’s hitting all-time lows on a trade-weighted index. Must be Ben Bernanke’s fault: him and his QE2. Except it really isn’t. And Mark Dow, today, does a great job of explaining not only why the monetary-policy theory is wrong, but also what the real reasons for dollar weakness are.

For one thing, the dollar is basically just back to where it was before the crisis: the recent weakness is to a large degree an unwinding of the flight-to-quality trade we saw when everybody was worried about the world coming to an end. The real decline in the dollar took place between 2002 and 2008, when it went from 110 to 70 on the trade-weighted index. And there wasn’t any QE2 back then.

And if lax monetary policy were the main cause here you’d think that the dollar would be appreciating at the very least against the yen, given how the Bank of Japan is pumping hundreds of billions of dollars into its economy. But in fact the yen is strengthening against the dollar.

Meanwhile, says Dow, there are two “tectonic forces” driving the dollar lower. On the one hand there’s the simple fact that the world had 50 years of wealth creation in the wake of World War II, and much if not most of that saved wealth found itself in dollars. Over the past 10 years or so, however, the need and desire for global savers to hold their wealth in dollars has been evaporating, and citizens around the world — not to mention their central banks — have been much more comfortable holding assets in their own domestic currencies, as well as the euro. That trend is likely to continue:

This stock adjustment will continue until a new equilibrium is found. The dollar is some 63% of global reserves, but the U.S. is now only 20% of global output. I am not suggesting that equilibrium is at 20%, but 40% doesn’t seem like an intellectual stretch.

On top of that is the fact that US workers are massively overpaid compared to their equally-productive and well-educated counterparts in countries all over the world. There are a number of ways that the discrepancy can be narrowed: wages in countries from Slovenia to South Africa could go up; US wages can go down; or the dollar can simply depreciate. Which is a lot easier than nominal or even real wage cuts.

None of this is under the control of the Treasury Secretary or anybody else, no matter how often he repeats that a strong dollar is in the national interest. And the clear implication is that the dollar is going to continue to weaken for the foreseeable future. That’s not going to do much if any harm to the US economy. But it does add a certain amount of fuel to commodity-bubble fires.


Per work by David Ranson, head of research at Wainwright Economics, agreement on the commodities front, but exception on the comment that a weak dollar is not going to do much harm if any to the US economy.

Ben Bernanke’s recent forecast that the surge in commodity prices will be “transitory” merely shows how ignorant a well-trained economist can be. His and President Obama’s views are prime examples of George Orwell’s quip that “there are some ideas so wrong that only a very intelligent person could believe in them.”

Although politicians are aware of the commonly recognized connection between currency weakness and commodity price inflation, they are in denial about the easily demonstrated link between both of these market phenomena and inflation generally.

Luis de Agustin

Posted by LuisdeAgustin | Report as abusive

Where does value lie in a restaurant meal?

Felix Salmon
Apr 26, 2011 22:58 UTC

Joshua David Stein, reviewing Chef’s Table in October on the strength of one visit where he spent his own money, was very unhappy about the restaurant’s rules and how they’re enforced. And now NYT restaurant critic Sam Sifton has delivered his magisterial verdict — not only on the restaurant, but also on Stein:

Multiple meals at the restaurant, as well as interviews with regular customers I was able to track down in my digital Ferragamos, suggest that this criticism may be unwarranted.

In case you need a translation, what Sifton means here is “I ate at Chef’s Table four different times, and I spoke to a bunch of other people who have eaten there, and none of us left with the same bad taste in their mouth that Stein had.” Why does he have to torture his way to a ridiculous “multiple meals suggest” formulation instead?

This isn’t an attempt to avoid the first person, which appears twice in this sentence alone. It’s just bad writing: the “digital Ferragamos” are particularly egregious, but the pompousness of “may be unwarranted” is pretty stunning in its own right.

Not least because, if you read Stein’s piece, his beef with chef Cesar Ramirez clearly was warranted:

I was taking notes in a small black Moleskine notebook under the counter. It wasn’t because I was reviewing your restaurant. (I, like most reviewers, refrain from taking notes during such meals). It was precisely because I had looked forward so ardently to this meal and felt myself so lucky to be there, I didn’t want to forget what I ate. None of the amuses were on the menu and, as noted, what was on the menu was only nominally described…

As I finished the tofu, you approached me. I turned around in my stool, happy to chat, to congratulate you on the triumphs of what we had eaten, happy for a whole range of chef-to-patron interactions. But it wasn’t to be. You leaned in close so I could see every sweaty pore on your shaved head and said, loudly and furiously, “I don’t know where you fucking cook, but you’ll never replicate this. I’ve been watching you disrespect my kitchen all night. You’ll never be able to do what I do.”

It took me a moment to realize you were talking about my note taking. It didn’t register initially because you hadn’t seemed to object when the first two of your three rules were disregarded. Plus, what the fuck?

In that brief interval, my wife interjected, “He doesn’t cook.” It’s true. I’m no good at it.

“I’m sorry, Chef,” I said, shaken. “I didn’t mean to disrespect your kitchen.”

“Why are you taking notes?” you demanded. “That’s some sneaky shit.”

“Well, I’m loving this food and I don’t want to forget it and Ana and I won’t be able to come back and…” “Why not?” “Um,” said Ana, “because we can’t afford it.”

I apologized a couple of times more. You said don’t worry about it and at some point later in the night, as you were walking behind me, you gave me a double squeeze on the shoulder that non-verbally said, “It’s cool.”

I read it that way but Ana—not used to being yelled at in front of an entire restaurant—couldn’t shake the feeling and spent the rest of the meal cresting into tears. We couldn’t make eye contact with that waitress who narc’d us out, we couldn’t make eye contact with you, we couldn’t make eye contact with the Australians who at this point wouldn’t make eye contact with us. And though all we did was stare at the small plates as they continued their sadistically endless procession, all I remember beside “Wagyu Steak, Cheese, Dessert” is desperately wanting to leave.

Now, I’m quite sure that this particular experience didn’t happen to Sifton. (For one thing, he was almost certainly recognized.) But Ramirez ruined Stein’s meal. You don’t do that, if you’re a chef. Especially not when the sin is as minor as wanting to write down some notes about a special meal which you want to remember for a long time. And when the punishment is applied so capriciously: Stein says that no one objected “to one solo diner spending the entirety of her night texting”.

Sifton doesn’t address Stein’s meal directly; instead he just says that the arbitrary rule against taking notes is “perfectly reasonable”, without explaining why.

Sifton’s commenters, none of whom seem to have clicked through to Stein’s piece, are in two minds about this. Some say that a don’t-take-notes rule is profoundly silly, especially when the menu is so truncated and monosyllabic as to be useless as an aide-memoire. Others defend the rule, on the grounds that taking notes alters the sense of theater and the delicate relationship between chef and diner.

Neither Sifton nor his commenters address the real reason why Ramirez’s menu is so short and why he bans photography and note-taking: he’s paranoid about his ideas and recipes being stolen.

Which is insane.

Sifton read Stein’s piece, so he knows why Ramirez is doing what he’s doing. As a result, when he says that Ramirez is being “perfectly reasonable”, one can only conclude that Sifton thinks the chef’s bizarre paranoia makes perfect sense.

Sifton works very closely with his colleague Pete Wells, who pretty much owns the beat of recipes as intellectual property — see this piece from Food & Wine, or this one in the NYT. Some people take the issue of stealing recipes much more seriously than others — and people in the taking-it-seriously camp, says Wells, are exploring two ways to protect their intellectual property: patents and copyright. Nowhere has he so much as hinted that a no-note-taking rule, or shouting at diners who are writing in notebooks, is a remotely sensible approach to the problem, if indeed it’s a problem in the first place.

From an economic perspective, it’s pretty clear that people copying recipes is not a problem. Ramirez’s restaurant is all but impossible to get into; he can and does charge pretty much whatever he likes for a meal. The prix fixe is now up to $165 per person, not including tip and not including wine, either; Ramirez doesn’t have a license yet. Even if a dish or two turned up on a menu elsewhere, there would be no effect on Ramirez’s revenues: he will always seat the same number of diners every night.

And it’s worth dwelling on that $165 price tag for a minute, too. Sifton, who expensed his meals, is unfazed, saying blithely that the price “is either expensive or not, depending on your bank balance, but it is worth the money whatever your answer”. I think he’s wrong about this: if you’re spending north of $200 per person on dinner before having a drop to drink, that’s objectively expensive. If you have a lot of money, you will surely be able to afford it more easily than if you’re in Stein’s situation. But Chef’s Table is undeniably an expensive restaurant.

So what makes Sifton so sure that Chef’s Table is worth the money? The quality of the food is surely part of the answer, but I’m quite sure that the quantity of the food — the fact that you’re eating a 20-course meal — came into Sifton’s consideration as well. Why, divide $200 by 20 courses, and it’s only $10 per course!

The problem with this line of thinking is that for many people, when it comes to restaurant courses, more is less. I’ve had my fair share of multi-course menus; they tend to be found at highly-celebrated restaurants like Alinea, and diners generally have no choice in the matter — it’s all those courses or nothing. Looking back on all those meals, I can remember one or two disasters, as well as some meals where I came away with inchoate memories of lots of delicious and surprising flavors, combinations, and presentations. But the number of actual dishes I can remember is tiny — and pretty much confined to the dishes I wrote something about, or photographed. These long meals tend to be accompanied by a fair amount of wine, and all that alcohol consumption certainly makes remembering individual dishes harder.

The best and most memorable meals I’ve ever had were not gilded multi-course exercises in ego-polishing, but were much simpler fare, cooked to perfection at Gandarias, a pintxo bar in San Sebastian, and at Hook, Line and Sinker, a small fish shack in Pringle Bay, outside Cape Town. Closer to home, I can remember in detail dozens of wonderful meals at Oyster Bar, mostly variations on the general theme of chowder and oysters; while much more elaborate fare at places like Corton, for all that it tastes great at the time, I find myself unable to recall at all.

For me, the determination as to whether a meal is worth the money has to be made on the level of the meal itself, rather than on a sum-of-the-parts basis. I had pretty much a perfect meal at Hook, Line and Sinker, picking grilled fish off a huge platter and pouring myself great local (red!) wine from a bottle in the middle of the rough-hewn table. If there had been more courses and more effort and more beautiful plating, I would not have enjoyed the meal any more, it wouldn’t have been a better meal — and therefore I fail to see how it could possibly have been “worth” more money.

I do appreciate, of course, that producing 20 courses in a row is a difficult and expensive proposition. If you’re going to do that, you have to charge a lot of money — especially when you can’t cross-subsidize yourself with profits on your wine list. I’m all in favor of talented chefs making decent money. And it would be silly for Ramirez to charge less than he does, given what the market will clearly bear. But none of that means that from the diner’s point of view, Ramirez’s meal is worth well over $400 per couple. (Which, if you’re interested, works out at roughly 15% of Brooklyn’s monthly median household income.)

In any case, worth it or not, Ramirez literally can’t lose in the event that someone steals one of his dishes. When an Australian chef named Robin Wickens stole a bunch of recipes from Alinea and started serving them at his restaurant in Melbourne, there were all manner of ethical violations going on — but there was no way in which Alinea’s Grant Achatz was economically harmed. In fact, when the culinary plagiarism was uncovered, he looked like even more of an original genius. Even if a cloned Ramirez dish were to show up in New York, reconstructed, miraculously, from a few scribbled notes, rather than through Wickens’s technique of working for a week in the kitchen and taking detailed photographs, it’s hard to see how that would damage him at all.

In the world of cocktails, things are very different, and copying can cost the inventor real money.

A big part of the problem, according to Freeman and other senior bartenders and mixologists, is the “brand ambassador” model. For those unfamiliar with it, it involves big liquor companies hiring bartenders to act as spokespeople for their brands. The bartender not only acts as an advocate but is also expected to create signature cocktail recipes using the product he or she is pushing. Only, these days, the model is so prevalent that liquor brands will tap just about anybody to be a brand ambassador. Oftentimes, these young bartenders (cheap labor compared to members of the old guard) don’t have the experience required to create their own cocktail recipes. And so they Google a recipe and tweak it, or simply use something they learned from a mentor —a mentor, mind you, who might be too expensive for a liquor company to hire directly.

But unless and until this kind of thing starts happening in the food world, let’s stop worrying about copycats — and, in doing so, let’s loosen up on silly rules designed to make their hypothetical lives that much harder. I can see why you might want to have a quiet word with people going overboard with flash photography or talking on cellphones, if such activity is annoying other diners. But it’s very hard for me to see how Sifton has arrived at the conclusion that Ramirez’s bans — expressions of pure ego on the part of the chef — are “perfectly reasonable” at all, given how silly the motivation behind them is.


@dsquared: Chefs are expendable. Over the past two decades I’ve worked for Ritz Carlton, Westin, Four Seasons & Saint Regis. (I still work for one of those but will refrain from stating which.) One thing I’ve learned: Chefs are expendable. They all know that. They may not like to admit it, but they are. The 19 y/o line cook at my hotel could do what Ramirez is doing. Any of the banquet cooks at my hotel could do what Ramirez is doing. I could do what Ramirez is doing, and I’m not a “chef” per se (although I know how to cook).

I would fire Ramirez, and his replacement would render him forgotten within a month.

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