Thursday, January 27, 2011

The Effects Of Bad Weather On GDP & Economic Well Being

The British Weather Services criticizes the view that the very weak U.K. GDP number published earlier this week was due to bad weather, claiming that "where there is a "weather loser" there is a "weather winner" on the opposite side of the fence".

I disagree with that view, as is illustrated by the fact that far more companies reported negative weather effects than positive weather effects. However, they do have a point in the sense that there are winners and that this to some extent (but far from fully) counteracts the negative effects. This in turn means that the negative net effect probably wasn't as great as the British statistics bureau estimated.

One business that booms whenever there is unusually large quantities of snow is the snow removal business. Increased snow removal counts (when it is paid) as economic activity in GDP statistics.

However, as their activity only removes something negative that usually doesn't exist, this "prosperity" created by snow is as illusory as a new window replacing one that has been broken. For this reason, the net negative effect on the economic well-being of Britons will be greater than the net negative effect on GDP.