The economics of disaster after devastation in Japan


“Japan will be poorer, for this disaster,” said Peter Morici, a business professor at the University of Maryland.

Toyota Motor Corp., the world’s biggest automaker, tumbled 7.9 percent after saying it would suspend manufacturing at its domestic plants through Wednesday — a production loss of 40,000 cars. Other manufacturers forced to halt production, such as Sony Corp. and Honda Motor Co., also slumped.

Much has been said in the aftermath of the earthquakes (the biggest with an intensity of 8.9 in the Richter Scale) and tsunami (with waves >10 meter high) that hit Japan last Friday.  First, the headcount of deaths has already reached 10K people and thousands more are still missing.  The first estimates on the economic impact stroked world’s stock markets and the price of petroleum fell in estimations of Japan’s industrial paralysis.

However, some economists would argue that the destruction caused by these natural disasters had something positive at the end of the day. Such is what had previously said Lawrence Summers, president emeritus of Harvard University that “It may lead to some temporary increments, ironically, to GDP, as a process of rebuilding takes place. In the wake of the earlier Kobe earthquake, Japan actually gained some economic strength” Many other economist believe the same as Mr. Summers and the reason is that an enormous influx of liquidity is to enter Japan’s long stagnant economy.  Already, Japan’s central bank pumped a record $184 billion into money markets and took other measures to protect a teetering economy today, as the Tokyo stock market nose-dived followed the devastating earthquakes and tsunami.  Afterward, large scale reconstruction plans are to start and billions of dollars would be pumped to reconstruct the country.  Overall, this huge reconstruction investments could trigger the recovery of Japan’s economy.

So, is everything going to be better?

Japanese culture and attitudes toward disasters has always been identified with the adjectives “pro activity, benevolence, cooperation and honesty”.  As such, looting has not occurred and reconstruction has started after only 3 days of the disasters.   However, the economy is not going to recover positively from this disasters no matter how much money is pumped into the economy to reconstruct by private companies or public investment.

Why is that the economy will continue suffering?

The destruction of business and public services had been working efficiently under market laws. This means that there is no relation to “creative destruction” and destruction occurred because of natural disasters.  Creative destruction applies only to businesses that were not competitive and as such, disappeared to open new investment in new industries and technologies.  A good example of creative destruction was how American Car Industry should have disappeared after the 2008 financial crisis to allow for more competitive companies (bailouts avoided it causing long term inefficiencies and economic loses to the US).

The reconstruction of Japan will require billions and this would surely ignite the tentacles of governmental interventionists agencies under the fallacy that the earthquake and tsunami were good things for Japan.  Government interventionism always deems disaster good to the system since it allows them pump more taxes and extort more money from private businesses.

Rebuilding Japan will be a hard and difficult work and estimates of the are at up to 15 trillion yen ($183 billion) — about 3 percent of gross domestic product.  Credit Suisse’s Shirakawa said in a report the direct economic losses such as property destruction could total 6 trillion yen ($73 billion) to 7 trillion yen. Indirect losses such as lost production will probably be higher.  The costs of reconstruction are at a high loss for the Japanese people and the rest of humanity.  This historical moment will again open the doors for collectivist ideologies that consider the sacrifice of individual rights to benefit the public good.

Evidence and history has shown that reconstruction and investment is more quickly, effective and has better long term effects if kept private and in respect of individual’s rights.  Lord Acton’s essay “The fallacy of the broken window” is a great example of how destruction is not always positive and of how reconstruction should be organized by a government that respects an individual’s right to his rights and property.  It is now our obligation to remind this to leaders of world governments.

Here’s a great video explaining it,

Video: The broken window fallacy

Don’t eat fish; the tragedy of the Commons


It was made official that chances for Bluefin Tuna to go extinct this year were pretty accurate.   The report says that the Atlantic bluefin are “Critically Endangered” given that its population numbers have declined by upwards of 80 percent since the 1970s. Even recently instituted stricter restrictions on allowable catch levels may be too little too late for the huge migratory fish.  It is now clear that all the restrictions done by the International Commission for the Conservation of Atlantic Tunas (ICCAT) and the U.N. Convention on International Trade in Endangered Species (CITES) failed to work.  And yes, the only solution was to privatize the commerce of this important fish for the ecosystem of our seas.

A couple nights ago, I was sitting with my family at home. It was late at night and the TV was on playing the scariest videos I’ve seen. It seems that the world is slowly dying and this time, it is humans that are to be blamed. The Pacific Ocean is slowly dying.

Video: Don’t eat fish

But it is not only humans who are to be blamed. As a matter of fact, this is a more complex story than people trowing trash to the sea. This is part of what Garrett Hardin first published in the journal Science in 1968; it is called the Tragedy of the Commons and it seems that the only solution the seas & the planet have on their side is to privatize the seas.

Really, it is the only solution left for the seas. If interested in learning more about sea privatization take a look of this videos,