What’s wrong with closing some parts of the economy so long as we keep ‘food supply’ open?

Wassily Leontief won the nobel prize in economics in 1973 for his creation of input-output modeling. If Turing can be credited for almost single-handedly winning the war at Bletchley Park, Leontief deserved the prize for using Turing’s computer in 1950 to build a 500 equation model of US input and output. For the first time, economists could see with their own eyes what they had been only theorizing about for two centuries. Leontief’s input-ouput model allowing economists to see the macro-economy, was the economic equivalent to seeing the atom in a microscope.

What does all this have to do with COVID?

From on or about March 15 2020, Canada and the United States are operating what is, for all intents and purposes, a soviet-style command economy. Not intentionally, but by ignorance. For instance, the Ontario Emergency Management and Civil Protection Act stipulates that the ‘food’ industry is deemed ‘necessary’ and is permitted to stay open even while its people contract and die from COVID. Everyone else stays home.

Leontief taught us that the economy is organic. When I say the economy is organic I mean that there are essentially no industries that are more or less necessary than any other because all or almost all are fixed coefficients into every other industry output including ‘food’. What I am really saying is that political leaders cannot close down some industries on the assumption that the food supply section can produce output independent of all other (closed) industries.

Here’s the proof

Statistics Canada produces the input output model for the Canadian economy. (There is a lag effect in publishing these models because the economists at Statscan are deadly accurate and they refine the data over time, so i am using the example of 2010 Canadian economy).

I present below the 110 input x 247 output Canadian economic model (2010). This is Statscan’s Leontief model and it shows how organic the whole economy is.

In the excel spreadsheet there are 110 rows (input industries) and 247 columns (output industries). The food industry is roughly made up of columns 1, 4, 17–26.

For example crop and animal production produces $49,509,249,000 in transactions. That is on average $130 million transactions per day(2010). Political choice closed the economy on or about March 20 2020. But they excepted food industries, thinking, in their inadequate manner, that so long as we keep ‘food’ open (but close everything else) we are going to be okay.

The problem with the theory of ‘necessity’ as set out in the Ontario Emergency Management and Civil Protection Act, is explained by the fact that for the $49B in column 1 output (see column 1 row 113), that crop and animal industries requires input from ALL OF THE OTHER INDUSTRIES IN THE ECONOMY listed in row 1–110.

‘Public health’ theorists cannot close ANY industry if they want a functioning food production sector. For example, to produce $50B in crops and animals, the column 1 industry requires $38M of air transportation. But aren’t all the aircraft effectively grounded, laid off or not flying? $50B animal and crop production requires $34M of real estate transactions. But isn’t real estate unnecessary in this period of ‘people dying? Column 1 requires $2.4M from Canadian hospitals. But aren’t all the hospital heroes too busy ‘fighting COVID’ to pay attention to other things (like cancer patients) or the triviality of animal and crop production? Animal and crop production requires $104M of government services. But government workers have, in the main, taken advantage of the opportunity to stay home. Are those government workers continuing to work everyday in the food sector?

Canadian governments have assuredly sent out the loud message to ‘stay home!’ contenting themselves that a hard month of virtue-signalling has saved us all.

Leontief would be puzzled at the stark political assumption that the food sector can continue to feed 36 million people when the spreadsheet suggest that the food industry needs inputs from all of those homebodies.

But can’t the farmers make do?

One of the great and powerful criticisms of Leontief was that output adjusts to shortages of particular inputs. True, in the long run every input can be somehow economized or avoided. As liberals love to parrot Keynes: ‘in the long run we’re all dead.’ Liberals never thought that this Keynesian sneer would come back to haunt their 2020 planning pretensions.

Consider for example, the necessity of receiving quarantine-waiver for various crops and livestock (a regular and much litigated government service). Are these quarantine folks working, contracting COVID and dying? If yes, how do Trudeau and Ford and Fauci think they can pick and choose the actual necessary industries?

While leaders are being more than careful to take lock-down steps so as not to spread a virus, they are doing it by killing the organic structure that keeps 360 million people alive and functioning. Jean Chretien used to tell a story that betrayed his true conservatism. He used it against the separatists in Quebec. He said that a million dollars doesn’t vote federal or separatist, but in a crisis it disappears in an instant. All new investment decisions (think: planting new crops) are implicitly or explicitly on hold. Stop-investment decisions are just as deadly as any virus. As Chretien said: a million dollars never screams and yells, it simply doesn’t invest. No doubt the liberal answer to this is ‘we’ll cross that bridge when we come to it.’

None of these doomsday scenarios are really going to happen

Don’t be so dramatic! insist social-distancers everywhere. Who cares about economics when people are dying!

Okay, what about what coming? What are all the lock-down heroes (I mean all or substantially all the elected leaders in North America regardless of their party) going to do when the real crisis materializes?

The most interesting thing about the warning issued by the Canadian Federation of Agriculture is that no average economist (me) could have predicted the direction or strength of the input crisis. This canary in the coal mine is, for economists, patient-zero out of Wuhan. Where’s the economic-Fauci when you need one?