The Economy Is an Immense Web, Not a Series of Chains

by Don Boudreaux on April 13, 2020

in Complexity & Emergence, Curious Task, Myths and Fallacies, Seen and Unseen, The Economy, Trade

One of the most misleading popular phrases used today in discussions of economics and economic policy is “supply chains.” The reason is that in the modern, complex economy, there are no supply chains. There is, instead, one immense, unfathomably complex, astonishingly productive, globe-spanning web of economic interconnectedness. Therefore, calls to “secure our critical supply chains” are words with far less meaning than those who pronounce these words – and many of those who hear these words – suppose these words to possess.

This point is central to my latest column for AIER. Here’s a slice:

Yet what, exactly, is meant by “critical?” Most obviously critical are products that sustain our lives. So at the top of the list of “critical” supplies, ahead even of medicines and military weaponry, stands food. Should government, therefore, prevent Americans from importing all foods? If not all foods, surely some foods. But if only some foods, which foods?

A ‘reasonable’ person would agree that only some foods are critical – grains and meats, perhaps, but not tomatoes and maple syrup. Let’s here simply grant that the determination of which foods are, and which aren’t, “critical” is easily-enough made and widely agreed upon.

But answering the question “Which foods are critical?” isn’t enough. We must then ask about the inputs necessary to supply ourselves with our “critical” foods. Chemical fertilizers and pesticides are necessary, as are tractors and irrigation equipment. So, too, are packaging materials, delivery vehicles, fuel, and refrigeration. And don’t forget insurance and financing. Without these inputs, we can neither produce enough of our critical foods nor ship what we do produce to consumers. So to “secure” our supplies of “critical” foods, government must also “secure” earlier links in the supply chain – namely, supplies of “critical” inputs to food production and distribution. But which inputs are “critical?”

To carry out policies of the sort demanded by Sen. Hawley, answering this question about which inputs are “critical” is no less necessary than is answering the question about which outputs are “critical.”

Yet to answer this question about inputs raises further questions about how to secure our supplies of these “critical” inputs. To produce these inputs requires other inputs.

Suppose that tractors are declared to be among the inputs that are part of the “critical supply chain” for ensuring that we Americans can reliably produce our own “critical” foods. Which inputs are “critical” for the production of tractors? Metals, plausibly, are critical. But is rubber? What about paint? (Unpainted farm equipment will be rapidly ruined by rust.) Which of the multitude of ‘beneath-the-hood’ parts of tractors – components such as fuel pumps, carbon-fiber hoses, the ceramic used in spark plugs – are “critical?” These questions must be answered in order to implement Sen. [Josh] Hawley’s policy.

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