Japan after the Earthquake and the Tsunami

May 04 2011

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On March 11, following an undersea earthquake measuring 9.0 on the Richter scale, a massive tsunami devastated portions of the island nation of Japan.  Over 27,000 people are dead or missing.  This commentary reviews several aspects of the disaster, including the impact on the Japanese economy.

 

 

Highlights:

  • Disasters often give rise to fears of economic paralysis and misplaced blame, and so it is with the March 11 earthquake and tsunami in Japan.
  • Ironically, the notion that random destruction is good for the economy also can arise. GDP—which measures economic activity but not wealth—may increase with reconstruction and those who believe in fiscal stimulus now look with hope to more deficit spending on infrastructure.
  • Both reactions are off the mark. The size and sophistication of Japan’s economy position it to overcome this crisis as it did the 1995 Kobe earthquake, but massive destruction makes a country poorer, not richer.
  • Deficit spending will not speed Japan’s recovery. On the contrary, its huge public debt from past unsuccessful stimulus measures is an obstacle to economic growth, especially now that it will be harder to decrease the debt.
  • Vilifying nuclear energy after Fukushima makes no more sense than vilifying oil after the Macondo spill in the Gulf of Mexico. Without oil and nuclear energy Japan would not have the world’s 3rd largest economy, but it still would have a large population to support and would have to endure earthquakes and tsunamis.
  • The loss of life and the destruction in Japan from this disaster are enormous. Appropriate reactions are to offer help and hone strategies for coping with future disasters.

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