Japan: The Economic Picture

The crisis in Japan has taken a huge toll as is evident in the widespread destruction, infrastructural failures and terrible loss of human life. Despite this, from a purely economic standpoint, the natural disaster offers a unique scenario that does not appear very fiscally threatening.

The thing that makes this disaster different from say the earthquake in Haiti or the Tsunami in Indonesia is that Japan isn’t poor. Quite to the contrary it currently stands as the third richest nation in the world and consequently its economy reflects the vitality and resilience of say American or English markets. Sure some regions have lost all manufacturing output. The result is that many manufacturing plants such as automobile lines are shut down for lack of parts supplied by stricken regions. And yet, these areas only account for about 2% of the country’s annual output, and parts can quickly be channeled in from other sources.

NPR’s Planet Money team offered a great historical comparison to illustrate this. During World War II, the allies sought targets that they could bomb to cripple the German economy. After thinking on end, they finally thought a ball bearings factory would be great to destroy and so they did. German production lines were forced to stop almost immediately but soon enough ball bearings were brought in from elsewhere and everything resumed.  To emphasize this further just think of today’s times. I have cell phones on my mind after the At&t and T-Mobile merger, so think about your cell phone. For many of us, our cell phones are our life lines, so imagine for example if due to some disaster or technological failure that Verizon crashed. Sure there’s panic right away; millions will lose their cell service and large portions of the country will be shut out of communication. Yet as morbid as the situation may seem, give it a month or two and if Verizon isn’t already working again, people will have already switched to At&t or Sprint or a smaller carrier and all will be fine. The point is it takes a lot to bring down a modern economic power. Unless perhaps Tokyo were hit, no one part of the country could bring down the entire nation because for every service there is a redundancy.

Now in the less developed countries I mentioned above like Haiti and Indonesia, a natural disaster can be irreparably damaging, but for now it appears that Japan will not be affected. If anything, some predict that reconstruction from the disaster will prove to be a stimulus package of sorts, allowing for investment, new jobs and the movement of capital. But that’s just the economics of it; otherwise this is a terrible disaster whose toll in lives shall never be repaid.