Supply? Or demand?
Tyler Cowen recently made the following observation:
—Had a Korean taco lately? If food carts are increasingly your workday lunch destination, you’re not alone. This $1 billion industry has grown 8.4 percent annually in the United States since the recession, according to market researcher IbisWorld — if only because they are cheaper than typical restaurant meals.
I’m tempted to start talking about “reasoning from a price change.” But Tyler was clearly assuming food cart meals are an inferior good. He was talking in terms of low prices, not falling prices.
But that raises another question; is the expansion driven by more demand, or more supply? The long run supply curve is probably fairly flat, and so it might be hard to tell by looking at price changes. Nevertheless, I can’t help but point out that an expansion of the food cart industry is exactly what the sticky-wage model predicts, as long-term unemployed who are shut out of the formal labor market by sticky wages will start their own businesses. Why doesn’t this happen more often? Why don’t other unemployed start driving their own car as a taxi, or start braiding hair in their home? As Matt Yglesias points out our political system has made it illegal for most unemployed workers to become self-employed. And of course many people don’t have the right personality to be entrepreneurs–they want a steady paycheck.
In the old days unions used to make recessions slightly worse (although they were not the cause.) Now unions are weak and occupational licensing laws have taken their place, becoming far more prevalent. Those laws also make recessions slightly worse, but are certainly not “the cause.”
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9. October 2012 at 11:01
Nevertheless, I can’t help but point out that an expansion of the food cart industry is exactly what the sticky-wage model predicts, as long-term unemployed who are shut out of the formal labor market by sticky wages will start their own businesses.
The food truck industry expansion is also what the “growing regulations” theory would predict.
Sticky wages? Or sticky regulations that are associated with wage paying jobs?
9. October 2012 at 11:32
So, you are arguing that food trucks being the place where people go to avoid regulation…
http://www.cityofboston.gov/business/mobile/
🙂
9. October 2012 at 11:36
Separately (did you get that multiple links issue fixed?)
I remain skeptical on the magnitude of measures of regulation driving up unemployment… Largely because of a failure to measure the cash economy…
For example.
Not surprisingly, the ratio of unreported income rose into 2008. [As an aside, Sweden is one of the most cashless economies in existence.]
9. October 2012 at 11:40
As much as foodies love their street food, I have always noticed that the poorer a country is, the more readily available the street food.
Don’t get me wrong – it’s tasty stuff. I just worry about what a growing street food industry implies about the state of economic affairs.
But hey maybe I’m wrong. Maybe there has been a big shift in the capital and technology required to produce street food, such that it is now in a first-world laborer’s best interest to quit his/her job and start selling short-order foodstuffs on the city streets.
9. October 2012 at 12:11
Are there examples of countries where occupational regulation is less and the economy fairs better than other countries during global recessions? Doesn’t Mexico have less/less well enforced regulation of this kind?
9. October 2012 at 12:25
Yet another advantage of inflation targeting.
We get the advantage of more street food!
All power to the insiders.
Let the outsiders come up with some way to serve us better!
9. October 2012 at 12:42
Don’t forget the tax advantages of operating a food cart. The locals regs (i.e. fees) on food carts are pretty strict, but you won’t find many revenuers prowling the city streets.
9. October 2012 at 12:46
statsguy, No, that’s not my argument.
9. October 2012 at 13:24
Bill Woolsey:
Inflation isn’t the engine of economic growth. If inflation was connected to food trucks, then it ought to be understood as a step down from what COULD have occurred, for example more restaurants.
You are a true believer, aren’t you.
9. October 2012 at 14:07
It’s a weird feeling when the random ass research company I used to work for, IBISWorld, gets quoted on Marginal Revolution and by you. End of line.
9. October 2012 at 14:28
I wouldn’t look to far into the correlation between food trucks and country wealth. Street food in the US is nothing like street food in Central America. In Central America and other “poor countries” street food is a very low capital intensity business that is accessible to everyone. High competition keeps their prices low. In the US street food/food trucks are not in any way, shape, or form an inferior good; they are a less capital intensive alternative to restaurants which benefit from increasingly epicurean preferences. Supply side factors keep the prices low, notably high competition and difficulty of regulatory enforcement.
9. October 2012 at 14:30
Hey look RACISTS:
https://angel.co/new-hive
9. October 2012 at 14:41
Matty is spending his time now telling everyone to root for higher airline ticket prices, so he’s a mixed bag.
Can’t you just find a steady state free market libertarian who make the right arguments 98% of the time?
In part, food carts are great because the lack of consistent quality of the food is offset by the menu innovation. Its definitely going in for shock value.
If you follow Yelp you’ll see food carts have broad swings on reviews.
This is why reality TV and blog works as well.
The more niche a thing is, the more forgiven it is for mistake made by folks who DESPERATELY want that one thing… they are SOOO happy there is about backyard treasure hunters, who cares is the lighting is off sometimes.
9. October 2012 at 15:46
All those new part-time workers have to be employed somewhere. Unless John Taylor is right that they’re all working on election campaigns;
http://johnbtaylorsblog.blogspot.com/2012/10/recent-part-time-job-increase-is-not.html
9. October 2012 at 15:54
This from Taylor is also pretty amusing;
http://johnbtaylorsblog.blogspot.com/2012/10/from-economic-scare-stories-to-other.html
———–quote———-
Twenty years ago this month my colleague Bob Hall and I wrote an op-ed for the New York Times about how “in recent months press reporting about the economy has become so pessimistic that it has completely lost touch with reality.” (October 16, 1992). The Times editors headlined our article “Economic Scare Stories,” which captured our point perfectly and fit the Halloween season. In October 1992, economic growth was improving following the 1990-91 recession, but most reporting looked beyond good economic news and said that the economy was doing poorly. Amazingly, the frequently-reported view that the economy in October 1992 was like the Great Depression went unchallenged. So we challenged it, hoping that our article would in some small way result in improved reporting.
Today press reporting seems to have switched to the other side of reality. Compared to October 1992, economic growth is now slower, unemployment is higher, and tragically the long-term unemployment rate is twice has high. And reported economic growth has been declining rather than improving as it was in 1992. Yet, in recent months much reporting about the economy has turned so upbeat that it has again lost touch with reality. Many look beyond the tragic growth or employment news and say that the economy is improving, or that things could have been worse, emphasizing that it is fortunately nothing like the Great Depression.
————endquote————–
9. October 2012 at 16:45
Mein Gott im Himmel;
http://www.voxeu.org/article/temporary-employment-trade-between-efficiency-and-fairness
‘Looking at overall employment first, our results yield broadly intuitive patterns: deregulation (i.e., lower values for the OECD indicators) is associated with higher employment. This confirms the overall thrust of the policy initiative. Higher shares of fixed-term contracts and temporary agency employment go hand in hand with higher employment levels. In the next column of the table, we measure the association of labour market regulations and the share of temporary employment with productivity, i.e., GDP per employed person in a given country and year. The results confirm expectations and show that productivity is negatively associated with higher levels of labour market regulation, even conditional on country fixed effects. Although not all results are robust to various time trend controls, they suggest that lower regulation is associated with higher employment and productivity. Thus, by and large, our evidence seems to support deregulation from an efficiency point of view.’
9. October 2012 at 17:41
Why stop at legalizing hair braiding? Is it a coincidence that Germany has legal brothels and also manages fairly ok under the ECB tyranny?
9. October 2012 at 19:02
the crazy fun dominant meme is Obamacare = part time workers.
matty’s 2nd favorite chain Olive Garden (Darden) is trialing EXCLUSIVELY part time restaurants.
Why oh why can’t we have less Econ Blogger Status Disease???
9. October 2012 at 19:04
A decent discussion of EBSD, though I think it misses a bit:
http://www.libertarianism.org/blog/why-do-intellecuals-support-government-solutions
10. October 2012 at 03:14
Tyler is trying another tack: http://marginalrevolution.com/marginalrevolution/2012/10/multiple-equilibria.html
Also see Zingales’ upcoming posts on EconLog.
10. October 2012 at 03:22
Genes, cultures and growth – the controversy expands: http://www.nature.com/news/economics-and-genetics-meet-in-uneasy-union-1.11565
10. October 2012 at 11:23
Morgan, I await Noah’s attack on that website.
Justin, I’d eliminate all occupational licensing laws.
Saturos, My new post addresses that Cowen post.
10. October 2012 at 16:29
Here is a little to reminder for everyone on the actual purpose of the Fed…
You know, just to refresh our memories on what advocating for NGDP targeting is really doing, intentional or not…
10. October 2012 at 20:42
Why don’t other unemployed start driving their own car as a taxi
There is a crackdown in San Francisco underway on unlicensed taxis.