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Tragedy in Japan: Some Economic Lessons

GB Geo-Blog

Tragedy in Japan: Some Economic Lessons

There are many economic lessons one can extract from the horrors that have engulfed Japan. Let me consider just three.

Equity and commodity prices worldwide fell sharply today. The common story purporting to explain the collapse in these prices is that the tragic events in Japan threaten the global economic recovery. Indeed, the shock threatens to push many economies back into recession.

Undoubtedly, Japan’s GDP will decline either in the current or the next quarter. The loss of production in many industries also will negatively impact numerous supply chains around the world. However, re-building the infrastructure will require hundreds of billions of dollars in new expenditures in Japan. Japan has the wealth, the capacity, the drive and the government and business leadership to ensure that these investments will be made in a timely manner. Japan’s economy will recover quickly as a result.

Unlike many European countries where governments are cutting back and pushing their countries into a recession, Japan’s economy will recover and avoid a recession.

The second lesson relates to the crisis overtaking the Japanese and several of their nuclear reactors. What we are observing with the various types of meltdowns at the Fukushima Daiichi plant is a classic Black Swan event – a low probability event with potentially catastrophic consequences.

The officials running Tokyo Electric Power, the company that operates these nuclear facilities, surely must have been aware of the possibility of the catastrophic sequence of events that have overwhelmed the plant and the reactors and the potentially enormous losses. If they did not, they should face criminal charges with severe penalties.

But I will give them the benefit of the doubt that they did know of these possibilities. Unfortunately, like many companies before them, BP being a recent example, they did not develop contingency plans for such a Black Swan event. If they had, instead of improvising as they are now and allowing the crisis to get out of control, they would have acted quickly. Even with contingency plans, they would not have prevented a serious problem. But they might have been able to mitigate some of  the dire consequences.

Why can’t people learn to prepare as best they can for Black Swans?

Finally, the most important lesson is that lives lost and lives shattered cannot be replaced. Capital can be replaced; people cannot! This is the real tragedy of what is unfolding in Japan.

When people are not given the opportunity to develop and use their talents, we all lose. The turmoil that we have seen in North Africa and the Middle East is the result of people demanding their rights to develop and use their talents. When prejudice and autocracy restrict the human potential, the countries lose and so does everyone else.

While we are powerless to do anything about the lives lost in Japan, or to do much to restore the lives shattered, we can do much to get rid of the shackles of prejudice and tyranny.

The opinions expressed in this blog are personal and do not reflect the views of either Global Brief or the Glendon School of Public and International Affairs.


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