Mikes2014

Comment on Economist article (March 16, 2011) “How Will Japan Pay for Reconstruction?”

This is the sort of quirk of economics that makes it be known as “the dismal science”. Nevertheless, it is certainly true that Japan is in the much better position than the US or Europe to finance a rebuild. If they can unlock domestic savings, and provide market based mechanisms for the allocation of resources above the obvious need to renew destroyed infrastructure, they will benefit the economy enormously.

In the meantime,quantitative easing (ie printing money) via the Bank of Japan to kick-start spending on reconstruction seems like a sensible thing to do without the inflationary pressure apparent in other first world countries. Since Japan appears to be in a deflationary environment, a boost to NGDP growth could only be a beneficial thing. These policy changes may indeed kick-start the Japanese economy back to life to the considerable benefit of the rest of the world.

If they do this, I predict they will return to more “normal” growth of 3-4% quite quickly and reduce their deficits very rapidly. No other countries have these opportunities in this way. Notwithstanding the tragic loss of life, in the long run for Japan it may open up a new chapter in their proud history, not all of it bad.