Hicks
As I put pen to paper, the Christmas forecast is for a huge storm. Some are calling in Great Lakes Hurricane, others a bomb cyclone and still others a regular old blizzard. My preferred term for it is not printable in this family-friendly publication. That’s mostly because I have family scrambling to get here before the weather closes airports and roads. Mother Nature appears angry with Father Christmas this year.
The good news is that this is just a forecast, and, as we all know, weather forecasters exist mostly to make economic forecasters look good. If predictions are correct, there will be a snarl with economic consequences. How bad it is depends on the timing and magnitude of the storm. The timing could hardly be worse.
A significant part of my early research involved the economic consequences of storms. Most of that was focused on flood damages from hurricanes. There are some similarities here, but winter storms are substantially less damaging. Even big ones, like the Blizzard of ’78, are less damaging than flood events. Still, the ‘extratropical cyclone’ event might be costly, and it is helpful to hint through what the costs might be and where they’ll be felt.
This storm comes amidst some of the busiest travel days of the year. That will mean thousands of canceled flights and many passengers unable to make it home when planned, if at all. This has a significant economic effect on airline and airport revenues. It can be especially costly as many of these canceled flights might not ever occur. Passengers unable to make it home for Christmas may permanently cancel plans, and airlines will simply lose that revenue.
Most folks don’t think of the losses to passengers as economic because there’s not an easy price tag to put on these trips. But, for travelers, the value of getting to a place near loved ones on Christmas is at least worth the cost of the flight. This interruption will be large. Almost 3 million people fly on an average day, and that could be closer to 5 million this holiday season.
Not every city will be affected, but large hurricanes can affect 25,000 flights. That level of cancellations would be more than $600 million. Of course, many of these flights will take place. Some passengers will leave early, others later, but a loss of several hundred million dollars from airline revenue is possible.
Large storms also impose costs on municipal governments for road clearing. With blizzard conditions projected for much of December 23rd, expect city and county governments to be busy clearing snow from the more than 200,000 lane miles of road.
By my quick calculation of 10 feet of road width, with six inches of average density snow, that is roughly 63 billion pounds of snow. Mixed with 30 billion pounds of sugar, 15 billion gallons of whole milk, and 600 million pounds of vanilla extract, that would provide enough snow ice cream for every person in the world to enjoy a dozen bowls, and roughly 13 brain freeze headaches each.
All kidding aside, for a city the size of Indianapolis, the snow removal costs could well top half a million dollars. That would likely blow the entire annual snow removal budget for the city. While most Hoosier municipalities plan for these sort of events, and have sufficient reserves, this spending is simply an economic loss.
The snow will likely cancel events ranging from school shows and sporting events, to church services and family gatherings. These things don’t make it into the national income accounts, but we value them. The loss of these is large, and can be measured at least by the value of the time we spent paying for and attending them.
The storm will also damage property. Doubtless by the time you read this there will have been home and industrial fires attributed to the storm. There will also have been hundreds or thousands of automobile and truck accidents. Power outages will cause pipes to freeze and other home damage. By the time you read this, the storm will have accumulated tens of millions of dollars of property damages — if we are fortunate.
Storms interrupt trade. A similar storm over Lake Superior sank the SS Edmund Fitzgerald in November 1975. However, the timing of our impending storm is fortunate in that most of the trade damage will be limited to travel. The holidays see a lot of restaurant and recreational spending, but the timing of December 23rd, 24th and 25th likely limits much of that damage. Ironically, the timing that nearly maximizes costs of travel delays will nearly minimize the cost to other commercial activities.
We tend to stock up on consumable items before storms. That is why milk, eggs and bread fly off the shelves. However, this weekend, like Thanksgiving, sees many families with full refrigerators. The storm buying spree will be more muted, but that really is more about the timing of consumption, not the level.
Among the heavier costs for government will be the emergency response. Nearly every police and fire official, EMS and highway department worker across several states will be working Friday and Saturday. These longer shifts are expensive, but some do the heavier costs will come if, like in 1978, the National Guard is activated to support snow and vehicle removal, or transportation and support of families who’ve lost power.
In the 1978 blizzard, armored personnel carriers and trucks were used to access residents who could not wait for snow removal. Operating that equipment is extraordinarily expensive, but sometimes necessary. Routine events, like the birth of children, will continue during the storm. People will become ill and need ambulance service, and in the case of widespread power outages, home evacuations may be needed.
By the time you read this column, the storm will have passed. By then we’ll know more fully the magnitude and timing of the event, and how accurate the forecasts. If we are lucky, the event will be more modest, with no loss of life and only modest property damage. If not, you might be reading this only after power was restored to your home.
In any event, we should give some thought to our many fellow citizens who’ll sacrifice much of this holiday week preparing for the storm, and responding to its affect in our communities. While most of us will be warm, facing only a snow shovel, hot chocolate and a Merry Christmas.
Michael J. Hicks is the director of the Center for Business and Economic Research and the George and Frances Ball Distinguished Professor of Economics in the Miller College of Business at Ball State University. Send comments to [email protected].
