JULY 2020 IN

Throwing Food Away As Measured in Economic Aggregates

Economic aggregates, the measures of combined economic activity, make arbitrary distinctions that can provide a misleading picture of the health of an economy. We are seeing an unusually large example of this as the places where food is thrown away are changing, resulting in artificial changes in the economic aggregates, changes that don’t really mean anything.

Considering the potential value of the world, the amount of food thrown away in the United States has been a concern for a very long time. The most accurate statistics come from the restaurant business, where it is estimated that only about half of the food purchased by a restaurant is eaten by customers. Of the rest, a tiny fraction is eaten by employees or given to charity. Roughly half of the food sent to restaurants, then, is thrown away.

Most households do better than this, but still end up throwing away between 10 and 40 percent of food purchases.

During the recent pandemic lockdowns, most restaurants closed and most consumers who previously ate at restaurants have been eating more often at home. The result has been, in a sense, a drastic reduction in food waste, with less food being put in the trash and getting on the truck to the landfill.

But wait. The amount of food being produced stayed almost the same. Many farmers who could not sell the food they grew ended using it as fertilizer, which essentially means they threw it away at the farm.

Here’s where it gets weird. If you throw away food at home, it counts the same as if you had eaten it. In economic statistics, it is considered part of what was produced, even though no one ate it and it didn’t produce any benefit.

It is a completely different story if food is thrown away on the farm. Then it is counted the same as if had never been grown. All the effort that went into producing vanishes. (To further muddy the waters, food that is eaten on the farm, or wherever it is grown, also is not counted as having been produced.)

It is an in-between case when food is thrown away at the factory or restaurant. To simplify, you can think of this food as being partly counted.

The pandemic lockdown has resulted in tons of food being thrown away in a different place than usual. With less food discarded at home and in the temporarily closed restaurants and more thrown away at factories and farms, it looks as if there is a drastic decline in economic activity even in places where people are working and eating exactly as much as before.

Of course, there are consumers who have been forced to eat less, and this actual economic distress is largely lost in the distorted economic statistics. The poor have never counted for much in the economic aggregates, and that is another flaw in the picture they present.

In normal times, the shape of economic activity doesn’t change so much from one year to the next, so the economic aggregates provide a reasonable sense of the changes in the scale of activity. Whenever a crisis hits, though, there are always distortions like this, and then the economic statistics can create a misleading picture of what is going on.

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