Monthly Archives: April 2011

Reconstruction of Japan

“How can we economically recover from the 3.11earthquake?”-this is a huge problem. While the Lehman Brothers bankruptcy occurred in U.S. and it has succeeded in settling down the problem, Japan is still struggling to recover despite that there was hardly a practical damage to our economy. “Why does this happen?”-the question still remains.

Looking at economy in terms of goods, we understand the mechanism of production, distribution, and consumption, but we cannot account for “economic condition” enough. Economy is basically a human activity, and this has a lot to do with “economic psychology.” People tend to refrain from consuming and investing when a big earthquake occurs and the future remains uncertain.

What Japan needs now is to make economy better, in other words, to activate the economy. To blow off the intimidated psychology of economy, efforts of individuals or corporates are helpless. This is a job of the government in macroeconomics. Current politicians, both the ruling party and the opposition parties, lack the ability in controlling economy. Before the earthquake, it was an argument of raising consumption tax. Then after the earthquake, it is reconstruction tax now: raising tax again.

If you raise tax in a recession, the economy will crash with resulting a further long recession. According to the public opinion survey, 69% agreed that the reconstruction tax is inevitably necessary. It is not good idea to go with this kind of opinion induction by the media. The result of survey could be easily changed depending on the questionnaire. Talking about the initiative by politicians, it is their job to guide to economic recovery, and this is possible.

Since some people say that Japan is under a budget deficit as if Japan is sinking, I think the budget should also be judged with a balance sheet. If you built a house with a debt of 35 million yen, this is your debt but also means you gained a property of 35 million yen in your hand. This could be applied to national economy.

In case of a company, it aims to make more money with the invested 35 million yen. This motivating force would make economy better. For instance, to get invested capital back in five years, it requires 7 million yen for amortization per year. Accordingly, at least 20% of investment as a profit is necessary every year on an earnings statement.

There is no problem, because Japan has enormous assets in households and collaterals are present for balancing out the budget. Although high yen is taken as a negative reaction and export industries are damaged in the short terms, it is only about 1% effect as a balance. This is because high yen enables manufacturers to purchase materials with a lower price

It requires public investment for reconstruction of Japan. Not only restoring destroyed infrastructures as before, but constructing further safe and advanced infrastructures is necessary. For example, if the government is going to issue a national bond with having a debt of 100 trillion yen, it only has to construct infrastructures of 100 trillion and this leads to a big economic boom.

Keynesian economics, especially in the period of a huge earthquake or depression, works very well. In addition to the policy like New Deal program in modern age, construction of Pyramids in Egypt in ancient times was conducted as a great project for an unemployment problem. In China, they had built the Great Wall for many years in the time of dynasties such as Qin, Han, and Ming doubling its self-defense. The knowledge already exists in the history, and politicians who are ignorant of it shall go away.

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