Getting the order of operations right: Why the Ford government’s attempts to save the economy won’t work, and what to do about it

TL;DR: To save the economy, first you gotta deal with the pandemic. Muddling around will only weaken the economy’s foundations.

I’m a big fan of academics staying in their lane and sticking to their areas of expertise. Subject expertise in one area doesn’t make someone worth listening to in another; all too often, it just muddies the conversational waters.

Which is why, a few tweets of despair notwithstanding, I’ve tried to limit my comments on the global coronavirus pandemic to things that I actually know something about, such as what sound policymaking looks like, and why Canada’s COVID Alert App did not reflect that. It’s also why I’ve been very careful not to say whether someone should or shouldn’t download the app; I’m not qualified to make that call.

Much better for all of us, I think, to leave that heavy lifting to those medical experts who know what they’re actually talking about, such as Dr. David Fisman, Dr. Andrew Morris, André Picard, the Globe and Mail’s longstanding public-health columnist, and Toronto Star columnist Bruce Arthur, who’s put in the hard work needed to understand the issue. No need for me, or anyone else, to give second-hand medical advice.

What I’m saying is, I’m no epidemiologist. But I do know something about the intersection between the economy and politics. And it’s this understanding that has me increasingly concerned about the backwards approach the Ford government (and, to be fair, most of the rest of the country) to the pandemic. Its recently announced colour-coded strategy, which outlines levels of restrictions linked to COVID prevalence in the community, is designed to keep the economy open as long as possible.

This approach is objectionable for several reasons, not least of which is that it effectively requires consumers to subsidize businesses at the risk of theirs’ and others’ lives. Support by the same consumer/taxpayer through government assistance for these same businesses, would impose merely a financial cost, not a health one.

Beyond that nasty moral quandary, this strategy is doomed to fail, even on its own narrow economic terms. (Although I’d note that actual epidemiologists don’t think too much of this approach in health terms, either.) Ironically, by focusing on keeping the economy open despite a rising number of infections, the Ford government will almost certainly end up hurting the Ontario economy more in the long run.

Putting the economy in its proper place

The Ford government’s policies seem driven by the assumption that there is a health-economic activity tradeoff: If you impose restrictions on economic activity to stop the spread of COVID, the economy will tank. From this perspective, Ford’s actions make sense. If you close the economy, growth stops, people are put out of work: None of this is a good outcome. So we want to keep the economy growing as much as possible.

Beyond the fact that empirical economic studies have shown this to be a myth, there’s also the problem that this view is rooted in some deeply held, but incorrect, beliefs.

Tucked away in the back of this health-economy tradeoff assumption is another widely held assumption, that “the economy” is equivalent to our measures of economic growth, namely the Gross Domestic Product.

The problem with this view, as the Italian economist Mariana Mazzucato discusses in her essential book, The Value of Everything, is that this focus on narrow measures of economic health such as the GDP misses the reality that the market economy – the part of society to which we attach prices – is deeply dependent on the parts of society that aren’t captured by GDP. And if you neglect these parts of society, then your economy will suffer in the long run. Which is my bet about what’s going to happen in Ontario.

Government spending is an investment, not a cost

An example, drawn in part from Mazzucato’s book (which everyone in public life should read): As many others have highlighted, child rearing, by parents and teachers, is not fully captured by GDP measures. Household work, including child care, is only included if it’s done by paid nannies or housecleaners, while teachers’ work only shows up as a cost in the national accounts. Treating teachers’ work as a cost helps explain why there is always such pressure to cut spending on schools (something Ford has been very interested in doing). That neither is considered part of the economy, like bars or banquet halls, helps to explain why they have been treated so haphazardly by the Ford and other governments when devising their pandemic response.

Ignoring the role of parents in raising children and treating teaching as a cost to be minimized is a huge mistake, both economically and socially. Instead of treating these activities as costs, we need to think of them (this is one of Mazzucato’s main points) as the basic investments needed to run a functioning society. Productive investments are the foundation of future innovation and economic growth. In other situations, we want to encourage spending on investments (say, in computers, new energy plants or research and development) in order to create a robust economy and society.

The thing is, this is exactly what parents and schools do. Parents and schools are in the business of creating productive and responsible members of society – citizens and workers – upon whom our future economic and social health will depend. In short, you cannot have a well-functioning economy without strong support for families and schools. They are, without exaggeration, the foundation and engine of economic growth, prosperity and innovation.

To save the economy, secure the foundations of the economy

If we recognize that families and schools are investments and not costs, and that the non-economic part of society is the foundation of the entire economy, then we’re left with two main conclusions.

First, any sound economic policy needs to start by securing the foundations of the economy, in this case, families and schools, not just supply chains. Ensuring child care for essential workers, and spending the money needed to allow schools to stay open safely needs to come first in the health-and-economy order of operations. Education spending and family supports need to be seen as essential investments, not as costs to be minimized.

A similar argument can be made to argue for much more comprehensive support for business and workers. This may show up as a cost on the government’s balance sheet, and Conservative governments are particularly sensitive to safeguarding the public purse. But this spending needs to be thought of as an investment in the future health of the entire economy, not as a drain on the taxpayer. Leaving this job to consumers and the marketplace won’t work because to do so encourages disease transmission. Again, the economy can’t get back to normal with this disease running rampant. It’s an investment in future productivity.

Second, because a healthy economy depends on a healthy society, the appropriate health policy, from an economic perspective, is almost certainly a policy of eradication, not mitigation, while providing support to businesses and workers during the curve-crunching period. Countries like New Zealand, Australia and China, it would appear, got it right: COVID has to be stomped to the ground if we want the economy to recover.

Again, this inability to appreciate the importance of the family and of schools to the economy isn’t really a uniquely Ford or Conservative (big- and small-c) blind spot. It is the result of decades spent thinking too narrowly about how value creation happens, focusing exclusively on the private sector at the expense of the role of the family and the public sector as economic burdens, rather than drivers of productivity and innovation.

Addressing this blind spot is necessary to deal with any number of pressing issues, not least of which are promoting innovation and dealing with the climate crisis. For now, however, failure to get the order of operations right – deal with the pandemic, support businesses in the interim, save the economy – will continue to have costs measured not only in dollars, but in lives. The sad irony being that Ford’s policy, undertaken to save the economy will, in the end, almost certainly harm it.

This entry was posted in Uncategorized and tagged , . Bookmark the permalink.