UP, UP INTO THE BLUE. WILLIAM WATSON,
No, this is not a story about two rich entrepreneurs riding their own rockets into space, even if their competing “mine’s better!” launches this month are the biggest thing to happen to manned space flight since July 1969. Rather, it’s about the state of the world economy, as summarized in the data tables that appear weekly in the back of The Economist magazine, (which despite its format insists on calling itself a newspaper, thus immediately raising doubts about its perceptual abilities).
The tables provide macroeconomic data for 42 countries plus the Euro area and they’re conveniently coded — pink for negative numbers, sky blue for positive ones — so you can tell at a glance what’s going on. The big news is that the economic growth numbers are all turning blue. Until recently, they were all pink, i.e., negative, which meant the world economy was definitely not in the pink. Now they’re turning blue, i.e., positive, which means the outlook for the world economy is nowhere near as blue as it was.
True, in terms of growth there’s still lots of pink about. Europe is still mainly pink, France excepted. But the U.S., China, us, and large parts of Asia and South America are blue, i.e., positive.
The news isn’t quite so good with respect to inflation, where too much blue — i.e., inflation that gets too high — isn’t desirable. In this week’s Economist table, everybody’s blue except Japan, where prices fell 0.1 per cent over the last year. In most countries, however, inflation is higher than it has been in a while. Some places are deep into the blue: in Argentina inflation is 48.8 per cent, in Turkey 17.5 per cent. But even in places where inflation has been low in recent years, it’s ticking up. In the U.S. it’s at five per cent. Here it’s 3.6 per cent. Both figures are well above the two countries’ official target of just two per cent.
In both countries, the inflation number, which measures the change in prices over the last 12 months, is for May. In May 2020 prices were down because of the pandemic so a jump is to be expected. But new data from the New York Fed indicate inflation expectations are beginning to be baked in. That will be a problem, if it continues. The Economist’s charts show that commodity prices are all blue, i.e., up, from where they were 12 months ago. Again, where they were was abnormal. Still, where commodity prices are today, prices in general tend to be tomorrow.
Another monochromatic column is for the different countries’ budget balances. All 42 plus the Euro area are pink, i.e., negative, in terms of their balances divided by GDP. Three countries (the U.S., U.K. and Italy) are double-digit negative. Canada is at 8.8 per cent of GDP. Only five countries have deficits higher than that: the three just mentioned plus Colombia and Japan.
In addition to the data tables, this week’s Economist features a cover story on “the fault lines in the world economy.” It identifies three big ones: between “the jabs” and “the jab nots”; between supply and demand; and over how governments and central banks safely withdraw the unprecedented stimulus they have provided since March 2020.
Regarding jabs and jab nots, not all foreign aid has a big benefit-cost payoff but getting vaccine into arms all around the world does look like a winner. Many Canadians have worried about the morality of vaccinating marginally susceptible members of our own society while older, exposed people in poor countries are months, even years away from getting their jab. As a parent, I personally had no compunctions about seeing to it my kids got their shots, a reaction I suspect is widely shared. But now that we are close to immunity in the Canadian herd, we can ease our guilt and also do immense good by helping supply the rest of the world.
As for supply and demand differences, the Economist neatly summarizes those in the labour market by saying “in some countries people seem keener to go for a drink than they do to work behind the bar.” That may be partly due to problem three, the continuation of stimulus packages, some of which in effect pay people not to work. Once such inducements end, however, the problem, if it persists, is not really a problem.
It will be major headache for restaurants and bars looking for labour. But if trouble finding it reflects a change in workers’ attitudes about making their living in a sector where working from home is impossible, well, reflecting people’s preferences is what markets are for.
If people are less eager to work at current wage rates, wage rates will have to rise. And if they do, prices will rise, too. Owners aren’t altruists. They can’t just absorb higher costs over the long run. If higher prices mean people go to bars and restaurants less, so be it. Because of their workers’ changing attitudes, the true costs of running these businesses will have risen. Businesses that can’t cover their true costs shouldn’t stay in business.
A cue for the upcoming federal election: Vote for any party that doesn’t promise to subsidize labour costs to keep alive these supposedly vital small businesses that nevertheless can’t cover their costs on their own.