5 March 2018

The Beast from the East was an economic storm in a teacup


The collision of Storm Emma and the Beast from the East has cost the British economy £1 billion a day. So, why don’t we stormproof Britain to make sure that we’ll not suffer again? The simple answer is that Britain doesn’t have storms of that sort often enough to make it worthwhile. Just as we don’t put trains on cogs and funiculars as the Swiss do, since we don’t have the mountains, we’ve not got steep-pitched roofs on our houses so that the snow will slide off, as the Bavarians do, because for we’ve not, generally, the snow.

We are, in fact, as both the environment and the development specialists would have us do, using the appropriate technology. All of the things that we might do to ensure that matters run in bad weather cost money. British Rail only gets the wrong sort of snow occasionally, after all. Proofing the economy against something that happens once a decade – as long as what happens isn’t too disastrous – isn’t worth the cost of doing so.

That’s because those costs are higher than what is saved. It’s for this reason that we allow parts of East Anglia to flood these days rather than erecting more coastal defences. The very same argument is at the heart of the climate change furore. It’s not merely about what is going to happen, it is the measurement of what the cost of it happening will be, as against the costs of preventing it from happening. The answer, as even Lord Stern has told us, is that we’ll put up with some of the change because the cost of not having it is so much greater.

We might even appeal to Georges Mikes’ old joke, that the reason the British talk so much about the weather is that we have it, while everyone else has a climate. The reason why the trains work in winter, there are fleets of gritting lorries, electricity wires don’t collapse under the weight of snow and so on, in Germany is because the climate happens every year, so it’s worth building for those events. Here in Britain, just as we’d not build anything in the expectation that we’ll win the World Cup more than once in every few generations, so it is with two feet of snow. Just not worth the effort.

It’s also true that those losses of £1 billion a day aren’t quite what they seem. Yes, certainly, economic activity doesn’t happen because of the weather but it’s a transient effect. Such losses tend to be – tend, mind – little more than a blip, for we do generally catch up soon afterwards. Demand from outside the affected areas still exists, we all do a bit of overtime, work in a slightly more concentrated manner, and when we look back across a reasonable time difference it’s very difficult to see such losses as permanently existing.

On a larger scale, that’s true even of recessions. If we look at centuries’ worth of GDP figures we see even the Great Depression as being just a blip. Just as with spending the entire night trapped on a train outside Lewisham, it certainly didn’t feel that way to those who went through it. But by perhaps 1955 or 1960, the standard of living appeared to be just what it would have been if the 1930s had never happened. A straight line drawn from the rate of growth across 1900 to 1929 would have got us, pretty much, to where we were in 1960.

All in all a useful enough reminder that all those Keynesian concerns about demand in the economy are shorter terms worries. Over significant, decades-long, periods of time it’s technological advance and productivity which matter,and  little else.

But should we worry about that £1 billion a day lost? This is economic activity which hasn’t happened because of the weather preventing us from doing it. OK, this is bad as well. But why, in that case, do we continue to lumber ourselves with any regulation that prevents economic activity from happening? One example that presents itself is a recent report into Uber. Apparently some fairly sizeable number of drivers in the US make less than minimum wage doing the ferrying of drunks around town. We’ve laws against people being able to offer their labour for less than minimum wage. One of these two things is therefore wrong.

The correct answer, naturally, is that if people are happy to work for less than minimum wage, then we should abolish that minimum, so that people can do what they’re happy enough to do. After all, the regulation is preventing economic activity from happening, just as much as the snow stopping people from taking taxi rides did.

We shouldn’t worry very much about weather events crippling the British economy as they’re not common enough for us to do more than just shrug and bear it. We should, though, worry about those other regulatory things we do which make us all permanently, not transiently, poorer.

Tim Worstall works for the Adam Smith Institute and Continental Telegraph.