No first world country has ever experienced a natural disaster of the destructiveness of the Japanese earthquake, and only the Boxing day Tsunami in 2005 exceeds it for sheer human tragedy. The following is not to belittle the suffering of the Japanese people, but they are the citizens of an effective state, which will be able to help better than perhaps any on the planet. The US pacific fleet is also on the way and tens of thousands of US troops are already there as are search and rescue teams from a many nations (including, I am pleased to say 200 or so from the UK), so anything that can be done to mitigate the humanitarian disaster, is being done. Unfortunately, this disaster has so far been short of the uplifting tales of the triumph of the Human spirit when people are pulled alive from the rubble after days trapped. Perhaps the reporting is concentrating on the Fukushima reactor, perhaps because there just aren’t many survivors.
In light of this dearth of good news, is it in bad taste to search for a silver lining? Perhaps this is the event that will finally get the Japanese economy moving following a 20-year deflationary spiral?
Most of you will be aware of Bastiat’s Broken Window parable, money spent repairing damage doesn’t stimulate the economy because the money spent would have been spent, not at the Glazier, but at the Bookshop or Cobbler or whatever who are deprived of business by the Glazier’s fees. But if the money would have instead been squirreled away by a parsimonious population, into JGBs, at ever lower yields then this broken window on an awful scale forces the Japanese to spend on new houses, cars, furniture to rebuild their lives and communities.
If there is anything in the idea of Government stimulus (the Japanese experience is that monetary & fiscal stimulus in the form of Quantitative easing, deficit spending and zero interest rates has emphatically NOT worked so far), then this is what it takes. Just as the stimulus of WWII was of the scale needed to kick-start the US economy after the depression.
Oh and one more thing. Japan’s public debt is 200% of GDP (ours is around 80% depending on how you calculate it, up from 34% when Labour abandoned fiscal sanity reality-based spending Tory spending plans in 2000). Do you think this helps, or hinders the ability of the Japanese Government to raise the necessary money to rebuild? What happens when interest rates rise in response to more enthusiastic economic activity? Ed Balls…. Ed…. Mr Balls…?