What is the Real Cost of this Shut Down?


My heart goes out to the thousands of Idahoans who own small businesses, or who are employed by small businessmen. These groups contribute 50% to Idaho’s $70 billion GDP; what an incredible hit they are taking. More than a few will go bankrupt, and for others, it will take a long time to reestablish a customer base and reconnect with supply chains. I am an amateur economist a surgeon by trade, but over the last 10 years, I have watched how credentialed professional economists have made arguments talking about “multiplier effects” and “economies of scale” and efficiencies in markets and supply chains they never really define that metric.

These economic models are about as accurate as the Global warming and COVID-19 models have been they use the same formulas, assumptions and are subject to input error magnifications as all the other models. Most importantly and this is the key the statistical analysis of the inputs doesn’t begin until the 1st inputs (assumptions) are made. I don’t think you would want these guys figuring out a flight plan or doing brain surgery. But they have been allowed to make decisions that are far reaching and today those decisions have been devastating. And they have assumed the authority of determining who and what is “essential”

I heard the story last week of a young woman who owned a nail and hairdressing salon. She is the unmarried mother of three children. She supports herself and has never taken government assistance of any kind. Her job has been determined to be “non-essential” I am sure her children consider her essential. Maybe someone from the Governor’s advisory committee should tell the children that their mother’s job is not essential. But oh, by the way, we can set your little family up with government programs. Not only are they taking away the mother’s livelihood and pride, but they are taking away her dignity. Unlike the many people who sign up to testify at the Health and Welfare Committee hearings who are constantly asking for more of their fellow citizens labor, the people who are angry and are demonstrating today are asking to work and take care of their own families and businesses. They even pay taxes!

Economists and bankers are unlike businessmen. They never factor into the calculous of an opportunity cost lost. In present value formulas and cash value of real estate interest rate risk and premium, risk are considered and occasionally default risk can be accommodated, but never the risk if you put the lump sum of money into another use except a Treasury-(1=r)t. So today, I want to reflect on the cost of the “shutdown” in Idaho, using similar logic as my professional economists friends would do but not the models with their invisible multipliers.

The GDP for the State of Idaho in 2018 was $80 billion. Fudging on the downside of the numbers that comes down to 200,000,000 (200 million dollars) per day or $6 billion for 30 days (I used 400 instead of 365 because I am lazy). Because 70% of the economy has been shut down that comes down to $120 million per day.

But hold on I am going to invoke the well- known but little described “economist privilege”. There are other costs. There is the cost of economic “frictions.” These are intrusions into a market place that keeps the market from operating efficiently. Restructuring supply chains forward and backward, converting whole hospitals to COVID-19 extreme possible uses and then converting them back again after only 30% of the space and people that were diverted from everyday functions return. In our community OR and ICU nurses were laid off and beds laid empty and OR’s were dark for days.

When doctors and nurses are doing nothing, laid off, or as one hospital administrator said to me furloughed—they are getting partial pay but not working. What happens to economic productivity? If one person does 2 units of work at $10 their productivity=20. If one person does zero work for $10 their productivity is zero! I won’t pretend to have a “model” for this like the professionals, but the implication is obvious.

So, in the end, it is a real big deal. The decision to shut down is being made by third parties—several on the Governor’s advisory panel are lobbyists representing special interests and also contributors to political campaigns who only have a political interest (reelection) and not an economic or even social interest in the game. What are they going to do when this is all hashed out? Increase our taxes? GDP in Idaho will more likely be 8-10% lower than it was last year. Will all levels of government borrow more money the Feds are not the only ones that can borrow but they are the only ones that don’t have to balance their budgets. Will State government continue to ask for more transfer payments? What about pension funds for government workers and teachers—will they be asked to take the same hit as private citizens, employers, and investors. Will they be paid for the time classes were called off, or will they be asked to come back and make up the time lost?

As I see it, coming out of this we have several problems that government won’t be able to solve. Because of the experience, people will place more of their money in savings and fixed income and they will invest less. Return on investment will be less and economic growth won’t be as fast as in the past. Secondly, as the market becomes flooded with government debt/bonds, the price of those bonds with increased supply, will go down and interest rates will go up. This will discourage investment in business equity, the cost of borrowing and restructuring debt at all levels of government will be impacted negatively. Do the politicians in our State really think that cost sharing formulas between State and the Feds will not be impacted? Will 90% Feds/10% State ratio for Medicaid stay the same?

All we want is to get back to work. Please and thank you. Next time we might not ask so nicely.

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