Japan Tsunami Costs, Lessons for US and EU

March 14, 2011 - PRLog -- By David Caploe PhD, Chief Political Economist, EconomyWatch.com

You have to feel sorry for Prime Minister Naoto Kan of the Japan Democratic Party.

After a long and very up-and-down career as a -- mostly -- opposition politician, he finally ascended to the top spot in June 2010,

and since then has faced a series of daunting challenges that would be tough for anyone to confront.

From a structural point of view, he and his party inherited the absolute mess of the Japanese economy,

which has been basically stagnant since the collapse of the Tokyo real estate market in 1989,

due largely to the unwillingness of the long-dominant Liberal Democratic Party

to force the country's Too-Big-To-Fail banks to put their losses openly on their books.

The result has been the so-called "zombie banks" -- technically alive, but effectively bankrupt --

whose combination of financial weakness and political strength has been

a dead weight on Japan's real economy for more than two decades now,

resulting in massive budget deficits and accumulated debt

that has severely limited any government's ability to improve things.

Hmmm, sound like any other advanced country with which you might be familiar ???

When Kan tried to deal with the problem of insufficient government revenues by doubling the sales tax,

he sparked popular resistance in the country, and then a revolt in his own party,

that left him barely in control of both the DPJ and its weak coalition government.

Shortly thereafter, in August, he had the courage to apologize to Korea on the 100th anniversary of the Japan Korea Annexation Treaty,

a move that was historically necessary, but aroused predictable rancor from the powerful Japanese right-wing.

Then in September, he had to deal with the unexpected and aggressive demands of China re a small island chain in the East China Sea,

as part of which, the Chinese shut down for a time their exports to Japan of high-tech-vital "rare earth metals",

on which several key Japanese, as well as other, companies are highly dependent.

Then in late November / December, Japan was shaken by the seemingly unprovoked North Korean attacks on South Korea,

a situation that always carries with it the potential of nuclear danger for Japan.

And now this, the Sendai / Fukushima earthquake / tsunami / nuclear emergency.

In such a fast-moving / still-evolving situation, it's impossible to predict either the main events or their likely outcomes.

But it does seem fair to say -- especially as reports mount of developing problems at a number of nuclear plants --

that this constitutes the most complex and multi-dimensional crisis in post-World War II Japanese history.

In this grave and unprecedented historical context, two salient facts stand out ...

The terrible events of the last few days, and those likely to come,

are most likely to WORSEN the chronic economic problems Japan has faced since 1989.

In that, unfortunately, lie some important lessons for the other stagnating advanced economies, namely the US and EU.

Like Japan, they have foolishly allowed the stock-price related needs of TBTF banks

to dominate considerations of both societal fairness

AND effective economic demand dispersed throughout society,

which is the ONLY way to insure long-run economic activity and sustainable growth.

As a result, they have moronically allowed themselves

to get into exactly the "lost decades" dynamic Japan has experienced since 1989,

and there are few signs they are going to get anything other than the miserable economic results

that Japan has had for the last 20 years even BEFORE this catastrophe.

This would be bad enough.

But even worse in this context is that both the US and EU have failed to take the remedial steps

for disaster preparedness that Japan did in the aftermath of the 1995 Kobe quake ...

Read more ... http://www.economywatch.com/economy-business-and-finance-...

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