Boston has been hit with several recent blizzards. How would an economist measure the aggregate damage caused by these storms? Recall from intermediate micro the concept of an expenditure function. The expenditure function represents the minimum income you would need to have to achieve a given level of utility. To solve this out, you would need to know each person's utility function and the market prices of every good that the person might buy.
For example, suppose my utility function = 20*beer + 2*pizza and the price of beer = price of pizza which equals 1. Suppose we want to solve for the minimum income, I would need to achieve 500 utiles of happiness. From staring at this consumer problem, it is immediate (given the linear utility function and the prices of the two goods) that I will spend all of my money on beer and buy no pizza. To achieve 500 utiles, I would need to drink 25 beers and at a price $1 each, I would need $25 to achieve my goal at the minimum cost. Note that I also could have ate 250 pizza but this would have cost $250 and thus is not the cost minimizing solution to this problem.
In a more serious example, this same approach could be used to measure the damage that the recent storms have caused to the people of Boston. The storms are a local public bad as they affect everyone in the area. In a Becker Household Production Function framework, the storms raise the price of commuting to work, shopping and meeting friends. When you face such "higher prices" , how much higher income would you need to be equally happy as you would be on a February day without the storm? That's what the expenditure function approach measures. Each person's willingness to pay (WTP in $) to not be exposed to the snow could be quantified and then added up to yield the metro area's total damage from the event. WTP to avoid snow = expenditure needed to achieve baseline utility level if snow - expenditure needed to achieve baseline utility level if no snow.
Some examples: So, suppose you are a Harvard Professor --- do you get more work done on snow days because all of your meetings are cancelled? Suppose you are a suburban soccer mom in Newton --- do you have a bad day as your kids are home with you and are going stir crazy? Or do you have a wonderful day with your kids as you treasure how finite this gift actually is. Suppose you are school teacher whose day at school is cancelled.
For Boston's metro area residents, yes shoveling the snow and maneuvering around is a hassle but I bet that people anticipated the event and bought food ahead of time. There are issues of roofs facing heavy weight and concerns about carbon monoxide levels but I bet that the people of Boston are doing pretty well as they adapt. They won the Superbowl and they have seen snow before.
What about the stores in Boston and their displaced sales? This lost revenue counts for them but the money that they did not collect doesn't vanish. The buyers can purchase stuff later or buy from Amazon. The loss to the Boston retailers is not a loss to the macroeconomy. Pessimists often forget this point as they fixate on physical places without thinking about the "big picture".
We all know that it snows in the Northeast in winter, who would set up a crucial meeting that can only happen face to face at such a time? The expectations of shocks leads us to make choices so that we are not at economic risk from these shocks. This is adaptation and we will only get better at this.
Now are the urban poor especially suffering in Boston due to the snow? The Christian Science Monitor writes about this issue. and here is what the City of Boston is now providing. I support this redistribution and would note that a richer city is better able to provide such services. In this way, free market growth is one of our key strategies to adapting to climate change.