Insights & Advice


Snowed Out

As I sit here snowbound at home, surrounded by almost two feet of the heavy, wet white stuff, it occurred to me that even here in the Berkshires snow has a cost. Sure, we pride ourselves on our ability to continue commuting, working and going about our daily business undeterred by Mother Nature but even we stalwart country types need to recognize the costs of our snow season.

Let me first recognize the economic benefits of snowfall to our winter resort businesses. As a former snow board and ski instructor, I noticed that when it snowed during the week in the Northeast, the slopes were packed on the weekends. The ripple effect on lodging, restaurants, gas stations, convenience stores, sport shops and countless other enterprises is well-documented in the region. The only issue is when it snows too much and visitors can’t get to our ski slopes. That might happen this weekend.

Most experts tally the expense of snowstorms by calculating the cost of snow removal. For us up here in the Snow Belt, those costs are low compared to Washington, D.C. or Manhattan, where labor costs are much higher. In Massachusetts, upstate New York and Connecticut our entire infrastructures are built around the removal of snow. Our costs begin to increase when storms are especially destructive like this one.

By some miracle our power is still on, although all around us trees are down and so are the power lines. Work crews can’t even get to the problem areas because of the snow -choked roads. Repairing those lines, removing trees and other obstacles is going to take a lot of work and even more overtime. That is going to hurt local budgets and increase costs. As roads, bridges, roofs and other structures collapse under the weight of the snow or are blown down due to high winds, insurance costs will also mount. The blizzards of 2010 could cost the nation close to $2 billion. Locally that number could be in the millions.

Much has been written about the cost of lost productivity as people are forced to stay home or simply use the weather as an excuse to take a “snow day.’ One enterprising analyst at the Financial Forecast Center figured out that in February the nation’s daily GDP averages about $646.27 billion a day. The 17 states that were hardest hit by these storms account for 38% of the U.S. population. He assumes that if just 20% of workers don’t show up for work today it will cost America $48.8 billion in lost productivity.

The author admits that number is high because of people like me. Just because I couldn’t make the commute to the office in Pittsfield doesn’t mean I’m not working. I’m sitting here writing a column. If I have time after this, I will continue working on a proposal to a non-profit organization that is interested in our money management services. At the same time, I am monitoring every move in the stock markets via computer. In fact, there is no pressing need for someone like me to actually go to an office in order to work as long as the internet is working and I have power. Here in the Berkshires, a large number of small businesses and individuals work from home. As a result, the weather is less of a factor in terms of productivity.

There is even an argument that blizzards like this provide some modest positives for the economy. Think of all the money small businesses like snow plow entrepreneurs are making right now. The added overtime and additional part-time work local governments provide workers in times like this are like mini-stimulus packages. Some of this sudden worker wind-fall money is surely going to be spent tonight for a few beers and maybe dinner at the local bar or restaurant. In fact, most of this extra money will quickly find its way back into the local economy.

If it makes you feel any better, we handle severe snowstorms far better than many other countries, take China for example. Last month, winter storms in southern and central China lasted several days. At least 50 people were killed, economic losses were well above $3 billion, more than 100,000 houses collapsed and 400,000 more were damaged. The roads werein shambles with one 40 kilometer stretch of highway clogged with 11,000 vehicles. The railroad system was not better. At one train station in Guangdong Province, 600,000 passengers were stranded and 2,500 police were dispatched to prevent riots.

So on the bright side, the Berkshires is better situated than most to weather these storms economically, which, I must admit, gives me little comfort as I shovel my deck for the third time today.

Posted in Macroeconomics, The Retired Advisor