Monday, April 19, 2010

About The Icelandic Volcano Eruption

The European continent seems to be struck by bad luck recently. First was the great cold snap during particularly late December and January. Barely had Europe recovered from this when a volcano in Iceland erupted. This volcano eruption seems to have been particularly powerful, because not only was the areas in Iceland close to the volcano affected negatively, but in addition to that the ashes it emitted has spread throughout Europe, ending air traffic in most of Europe.-

The media has focused on the plight of travelers being stuck at places they were supposed to leave for various reasons (including business purposes), or compelling them to travel by the much more expensive and/or time consuming means of train, bus or taxi. That is really bad enough, but a lot of goods traded are transported using air planes, meaning that the stop on air traffic will hurt trade too.

There is thus little doubt that this factor will hurt the European economies, and distort second quarter GDP numbers negatively in almost all European countries. Just how big the effect will be is uncertain at this point, not least because we don't know how long the problem will persist.

I should perhaps also comment on the fact that many airlines have criticized the decision to close air traffic.

I am not an expert on the scientific assessments of the affects of volcano ash on air traffic, but from what I've read about tests made by those who are experts, it seems that really great quantities of volcano ash could down a plane, but that at the far lower quantities spread throughout most of Europe, it is possible to fly a plane safely.

It seems very clear that European governments so far have been determined to err on the side of safety. And that they have most likely indeed erred on the side of safety. While we should do everything we can to minimize the risk of air traffic deaths given a certain level of air traffic and other relevant considerations, we should recognice that traffic is the life blood of modern economies.

Without traffic, no trade (not even intra-national trade) can be made, and the world would be condemned to local economic autarky, something which would not only mean the deaths of many people, but also make the lives of the survivors much worse. Meaning that we can't assume that stopping air traffic is costless, and that just as is the case with car traffic we shouldn't hold it to a standard where there is zero risk of any deaths (We rightly allow car traffic to precede, even though car traffic causes some 40,000 deaths in the EU alone each year).

We should of course continue to monitor the ash clouds, and stop traffic whenever the risk of crashes is high. But the standards for allowing air traffic so far have been far too strict, and needs to be changed. And this will certainly be a factor when to be considered when analyzing second quarter economic data.