Stupidity on Japanese Stilts

No, a major disaster is NOT good economic news.

Our taxpayer-funded Public Broadcasting System (PBS) announces that the record-breaking Japanese earthquake and tsunami will be good for the Japanese economy:

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: The world has watched as Japan suffers through a tragedy so vast it`s almost incomprehensible. Homes and villages swept away, factories, plants and oil refineries shuttered, roads and ports crippled, even the neon lights in Tokyo are dark. Still, Japan will rebuild, even if it takes many years. The devastation is likely to tip Japan into another recession in the near term. But economist Nariman Behravesh predicts reconstruction will ultimately give the economy a nice boost.

NARIMAN BEHRAVESH, CHIEF ECONOMIST, IHS (NYSE: IHS) GLOBAL INSIGHT: At the end of this year and through next year, it could add as much as half to maybe even a full percentage point to growth of the Japanese economy. So, it`s actually going to be good news starting in about the third quarter[emphasis added]

As one would expect from the lefties at PBS, this is stupidity on stilts, broadcast at our expense.  Although cost estimates are still being added up, everyone agrees that rebuilding will cost at least $200 billion.  That's small compared to Obama's deficits, but it's a major chunk of change for a country whose population is half the size of ours.

Suppose they put everything back the way it was.  They will have spent $200 billion dollars simply to get back where they were two weeks ago; there will be no net gain at vast expense.  Calling this "good news" is just plain stupid.

The Wall Street Journal got it right:

Now comes the great tragedy of the earthquake and tsunami. One major post-disaster danger is that the Japanese authorities will mishandle the recovery, with unfortunate consequences for the global economy.  [emphasis added]

The Journal points out that the Japanese government is populated by politicians who make decisions politically.  They're as likely to mishandle their economy as our politicians mishandled our economy.  In fact, they have a history here; the Japanese economy has been stalled for two decades as compared to our mere two years and change.

Only for a liberal is this good news.

Consider the "cash for clunkers" program.  Our government spent a lot of our money.  Many perfectly functional automobiles were destroyed.  There was little net gain - we had the same number of automobiles after spending billions as we had before.  There was much more government debt for no gain.

This misunderstanding of basic economics and capital formation is so common that a 19th century economist named Bastiat defined the "Broken Window Fallacy."  If a bunch of thugs rampage through town smashing windows, the argument goes, they create a lot of work for the glazier's union which is good for the economy and employment.

But that "work" comes out of the hides of the people whose windows were broken.  The city will have the same number of windows after they're repaired, but everybody who had a window broken will be worse off for having had to pay the glass makers.  There is no gain in disaster.

Unfortunately for Japanese taxpayers, the Japanese political class, like our rulers in Washington, sees a government solution for every problem.  Rather than leaving reconstruction to market forces, the politicians and bureaucrats will see an opportunity to plunge in and have government pay for the rebuilding.

Who Says? and Who Pays?

We once wrote that there are only two questions in government, "Who says?" - that is, who tells us what to do; and "Who pays?" - that is, who pays the resulting bills.  We now need to realize that there's only question, "Who says?" because it's always We the People who pay all the bills.  To see why this is so, consider the Japanese rebuilding effort.

Back in the feudal era, a local lord could conscript peasants to work without pay as he directed.  Sensible lords had their peasants build roads and other infrastructure; some squandered their labor supply on fancy housing for themselves.  The tradition of forcing low-ranking citizens to work for their betters was so common that our founders wrote into our Constitution a clause forbidding "takings" of the property of citizens without compensation; after the Civil War, this principle was made even more plain with a ban on "involuntary servitude".

The Japanese don't do involuntary servitude any more, so all the rebuilding work will have to be paid for.  Some citizens will take their insurance payments and rebuild, but politics being what it is, the government will likely lard on the lolly like there's no tomorrow.

Unfortunately, there are only a few ways governments can get money:

  • Claim ownership of natural resources as the Saudi, Russian, Mexican, and other governments own and sell oil.  This won't work in Japan because it's been an organized civilization for thousands of years and there really aren't any natural resources left to expropriate.
  • Print money.  Dollar bills are worth something only because the government says they have value.  It costs a lot less than a dollar to print a dollar bill, and the government makes even more money printing twenties.  The Bank of Japan has already begun printing an unlimited supply of yen.
  • Borrow money.  Unfortunately, lenders won't lend unless they think they'll be paid back.  If investors begin to doubt, they charge high interest or refuse to lend.  Fortunately, most Japanese debts is held by Japanese who can be patriotically urged to buy more, or at the least, not to sell what they've already got.
  • Raise taxes.  After all, government mandarins know better how to use your money than you do.

Bottom Line

Japan will rise again.  Their country was damaged far more by WW II than by a mere tsunami and they came back.

However, they've had decades of relatively easy living since they rebuilt after the war and their government employees have switched from serving the people to serving themselves so some attitude adjustment will be required.  The Japanese could rise to the occasion and start putting national interest first.  If they do, recovery will be relatively rapid.  If they don't, it will be a lot slower but they will come back eventually.

Ordinary Japanese citizens will pay for the recovery, either in taxes to spend on rebuilding or in taxes to pay off the debt incurred to pay for the rebuilding or in the loss of purchasing power through inflation caused by printing money to pay for the rebuilding.  Either way, it's the people who pay.

When our government-funded lefty publicists at PBS claim that the tsunami will benefit the Japanese economy, they're being as ignorant as when the Obama administration claims that replacing our existing power plants with "green energy" will benefit our economy.  It won't.

Fortunately, our voters have elected a few representatives who are beginning to realize this and vote accordingly.  Perhaps the Japanese will do the same.

Will Offensicht is a staff writer for and an internationally published author by a different name.  Read other articles by Will Offensicht or other articles on Economics.
Reader Comments

Every time I hear pundits talk about disasters being "good for the economy", it makes me sick. It's like a used car salesmen telling you the junker is so old it's actually a classic. Better buy it quick before it starts to appreciate again!

March 21, 2011 4:33 PM

Like it or not history has shown that disasters, whether man-made or natural can be very beneficial to the economy. The Black Death during the medieval period led to huge economic benefits to the people of Europe. Incidentally it also led to the growth of slavery, especially African slavery, since Europeans, even relatively poor Europeans, could easily earn a living where they were at and were in large part unwilling to go to far away lands to serve as laborers.

World War II likewise caused a huge swing in the American economy.

If a disaster is cleaned up then the money has to come from some where, that extra money and lead to an economic boom. Since economic strength is measured by how much money is in it and not how much utility is in it such a circumstance the nation could certainly have the appearance of economic strength.

Although I haven't been keeping up on the rebuilding after Katrina, it certainly sounds like that did not lead to an economic boom there. As with all things forecasting the future is very difficult.

March 21, 2011 5:55 PM

Jonyfries: You're still out the money spent to fix what wasn't broken before the disaster struck. That money can't be replaced.

So, yes, disasters to create economic activity, but they don't create new wealth. You still need to dig out of the hole the disaster dug before you can get a net gain.

March 21, 2011 6:11 PM

I didn't disagree with that premise Fennoman, simply providing the counter argument as seen by broadcasters and economists. The problem is the measurement of wealth is in dollars not utility. Modern economic views are unfortunately far too similar to Mercantilism. Money is the measure of wealth, money the measurement of a successful economy. Utility, while still a central idea in economics classes doesn't seem to understood the ones who teach it.

March 21, 2011 6:20 PM

Well, jonyfries is right that a disaster can create wealth **for someone else.** For example, if Japan had to import new concrete and steel to rebuild everything, whoever sold it to them would be better off than they otherwise would be.

I think Japan is mostly big enough to provide their own construction materials though, so it'll just move money around and the nation as a whole will end up poorer.

March 21, 2011 11:03 PM

To add to what Petrarch said: If we are a global economy, then globally we're still all worse off for having to rebuild Japan.

Example: The people of Japan, particularly northern Japan, need our help. Money that could have been spent on somewhat less acute (or critical, if you prefer), needs is now diverted to Japan to help their recovery. Those who could have benefited from the charitable aid are now put off until those who truly need it more have been helped. We've not made any ground.

March 22, 2011 9:51 AM
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