It’s entirely true that we can see the effects of the Beast from the East in the British GDP figures. It’s also true that the effect is going to be transient and of no great matter. That doesn’t change the manner in which many didn’t enjoy it, nor how we’re all that margin poorer as a result of the storm. It’s just that it’s not even going to be noticeable over time:
The heavy snow and disruption caused by the so-called ‘Beast from the East’ at the end of last month will knock the UK’s economic growth, the Bank of England has said.
“Recent snow-related disruption was likely to have a measurable adverse effect on growth in the first quarter, although it was difficult to quantify the precise extent of this,” the Bank’s Monetary Policy Committee (MPC) said.
The Bank’s economists had forecast first-quarter growth of 0.4pc, but “after incorporating an initial judgement on the impact of the snow-related news, staff had revised down their estimate of headline GDP growth to 0.3pc”.
We only ever measure GDP to that 0.1 of a percentage point so this is the smallest possible change that we can announce. It’s also true that there will be a little boost as we repair the damage. This is akin to that pollution problem we have. Cleaning up pollution is an addition to GDP, it’s economic activity which adds value so it should be. But the original pollution isn’t counted as a reduction in GDP because it isn’t. It’s a reduction in the capital stock of the economy. The same is true of weather. We lose what people didn’t make because of the weather, we lose some capital stock through the damages, we gain some GDP from repairing the damage and over time it all doesn’t matter anyway. At least, not at these sorts of levels – a hurricane which rips through and tears down everything has rather more of an effect.
Over time the effects becomes this:
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.
Looking back from a couple of decade’s time we’ll not even be able to see that it happened.
Compare the political hand-wringing in the US about the effect of hurricane flooding in coastal Texas on the 2017 statistics. The only place that is not back to normal is America’s kleptocracy in Puerto Rico, which was effectively in bankruptcy at the outset and where the governor hobbled the electric utility and deprecated assistance from the mainland to score partisan points.
GDP is a figure which if at all useful is only so as a broad brush. It doesn’t measure the right things, and it doesn’t measure things right. Absolutely useless to look at it on a quarterly basis. Five years maybe, then forget the result if it doesn’t suit you.
Agreed. And it’s frequently adjusted retrospectively by more than 0.1%, so any change at that level can be considered noise.