Wednesday, 16 March 2011

Japanese Tsunami & Broken Windows

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...?


North Briton 45 said...

Perfectly reasonable post for the most part but slightly puzzled by British debt as a percentage of GDP. You claim it is about 80 per cent, but the ONS in February said this:

'Public sector net debt (excluding financial interventions) was £867.2 billion (equivalent to 57.6 per cent of GDP) at the end of January 2011'

Even more curiously, you claim public debt was 34% 'when Labour took over'. This seems highly questionable. After all according to Treasury figures, public sector net debt at the end of March 1997 was 45%. Did the Tories go on some massive slashing just before the 1997 election which I somehow missed?

Jackart said...

Like I say "depends on how you calculate it". Treasury numbers are cyclically adjusted (read 'politically adjusted'), for example and can be ignored. Figures were from memory, and shouldn't be relied upon for detail. 70-80% is about right for this year: see the ONS.

Actually you're right on one thing: Until Labour abandoned Tory spending plans From 1997 to 2000, (when Gordon "economic fuckwit" Brown went on a spending spree of historic proportions) PSND fell to 34%, which is the 2000 number, not the '97 number. Post updated.

North Briton 45 said...

Link to ONS update which puts public sector net debt at 57.6 per cent as of January 2011

Intrinsic Value said...

BOJ has expanded the QE program to 10T Yen to aid the recovery. However it needs to be signficantly bigger to have a meaningful impact.

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