Free Markets, Free People

Japan


About that great Obama foreign policy success …

Seems Japan may not think the US is a dependable ally anymore:

When the U.S. Defense Secretary arrives in Asia this weekend, his biggest challenge may not be convincing China that America will give its full support to longtime ally Japan in the escalating dispute over islands in the East China Sea.  His biggest challenge may be convincing Japan.

“There is a perception in Japan that the U.S. commitment is ambiguous,” says Yoichiro Sato, director of international strategic studies at Ritsumeikan Asia Pacific University in southern Japan. “If China thinks Japan will hesitate to respond or that America will hesitate, that will embolden the Chinese. It’s better that America sends a clear, explicit message now than have to respond to something worse later.”

But remember … conventional wisdom (i.e. the MSM) has it that Obama has made the world better, safer and everyone likes us better.  That he is a master of foreign policy.

In fact, as many countries have indicated, they see the US as a declining power.  This particular instance is only one example of that thinking.

~McQ

Twitter: McQandO

Facebook: QandO


Economically, the whole world has become Japan

We’re talking Japan of “the lost decade” (now a couple of decades old).  We harp about markets and government intrusions here and explain why they’re almost always “a bad thing”.  Well, this is about market intrusion on a grand scale:

One of the consequences of all the stimulus and subsequent QE is that long time traders of our markets know they are screwed up. Consistent printing of money and 0% interest rates world wide have created their own economic imbalances. As the saying goes, there is no free lunch.

Economists such as Taylor, Cochrane, Zingales, Rajan and Murphy have said as much over the past four years. Turns out, they were right and the Keynesians are wrong.

The government stimulus had a multiplier effect of 0. It did nothing for job growth or GDP growth in the US. Combine the inefficiency of US fiscal policy with the continued implosion of Europe, and you have a world wide malaise. In China, because of macro economic effects, wages are rising, costs to produce are increasing. Companies are also wary of both the poor property rights system and the lengthened supply chain. China is slowing down.

Remember all the talk about the multiplier effect of the stimulus?  Yeah, disregard.

Meanwhile in the rest of the world the effects of all these market intrusions/manipulations are having their effect.

As the title says, we’re all Japan now.

Thanks, government(s).

~McQ

Twitter: @McQandO


Japan’s nuclear problem and panic as policy

First, take a look at ABC News’ coverage of the nuclear problem in Japan. I don’t know about you, but it seems tinged with emotional sensationalism to me. That’s not to say the problem isn’t obviously serious, but it has that emotional element to it that, well, isn’t very objective. It also implies that the result is likely to be from a doomsday scenario.

 

Now watch this segment:

 

What you see here is the rush to judgment. The first thing that happens is politicians, seeing this as fertile ground for image polishing (seeming to take seriously what has been trumped as serious and seeming to take action to address a perceived problem) jump in front of a camera to make the case for protecting the public by implying that we’re in the same boat as the Japanese and they’re the only ones who can save us.

Do you remember the map of the US in which the similar nuke sites to those in Japan flashed up?  Remember the map I showed you about significant earthquakes in the US for the past 200 years?  Theirs was up there quickly, and I may have missed it, but few if any of those plants fell in the real earthquake prone areas.  So to me, getting in front of a camera and pretending we’re in the same situation as that of the Japanese is simply scare mongering and irresponsible.  And that applies to both the politicians and news media types doing this.

It brings me to an Abe Greenwald piece in Commentary’s Contentions.  It is entitled “Panic as a Policy”.  He sets the stage by noting that Germany has gone absolutely bats over the Japanese crisis to the point that Angela Merkel, in the a political campaign, has decided to dump one of her most important policies of her second term – the extension of nuclear reactor lifetimes by an average of 12 years beyond their original scheduled phase-out date of 2012.  48 hours after the Japanese crisis, she ordered a three month moratorium on the extension.  7 of the oldest power stations will now be shut down immediately pending a 3 month safety review.

Says Greenwald:

Hysteria on the largest scale possible has become the default official response to all crises. A lay public furnished with near-instantaneous media coverage can be counted on to demand immediate and absolute measures so that the crisis can be scrubbed from consciousness, however crudely or illogically. And over-monitored leaders will be sure to comply. Today a politician can lose his job if he doesn’t swiftly change historical precedent to fit the frenzied misinterpretation of a still-breaking news story. This will continue to yield atrocious consequences.

I cannot agree more.  We have become, in many cases, victims of manufactured hysteria.  We get a fire hose effect of media stories, most of them pushed out in a way to grab attention and many incomplete or simply wrong. 

Did you note, for instance, the people ABC chose to interview for the 2nd piece?  The “GE 3”.  Labeled as “whistleblowers”, they layer the gloom and doom predictions with the supposed veneer of righteousness.  But again, these reactors have been operating safely for 40 years and it has taken a 9.0 earthquake, 33 foot tsunami and a total lack of power to get them in this position.  Also sort of blown by are the “safety upgrades” they’ve made since the reactors were built.   Anyone who thinks that these reactors didn’t receive many, many upgrades over their lifetimes really doesn’t understand the industry.  Finally, not a dissenting voice was sought out or if they were, their opinion wasn’t aired.  So you’re left with the impression that a fatally flawed product was allowed to be produced by an evil corporation in cahoots with various power companies, etc.

And, of course, you’re left with the impression that something must be done.  Which brings us to Greewald’s second point:

We have become accustomed to seeing collective shock elevated to the realm of policy. In fact, it’s what we expect of responsible leadership. There’s an oil spill? Ban drilling. A shooting? Forbid even speaking in martial metaphors. A nuclear accident? Kill nuclear energy. This crude emotionalism is actually liberalism at warp speed. It demands that governments alleviate the immediate discomfort of the onlooker without regard for accuracy or consequence. It will produce many more historic disasters than it can manage.

Again, I could not agree more.  I’ve called it “panic legislation” for years and it never turns out well.  The unfortunate fall-out of this (no pun intended) is probably the death knell of the nuclear power industry.  And, ironically, the fallback will be fossil fuel, most likely natural gas.  It is the cheapest and most efficient way to go, frankly and I have no problem with that, however, nuclear energy is still a clean, emissions free and powerful energy source that should be exploited in my humble opinion.  I know President Obama has reiterated his support of nuclear energy here, but let’s be honest, that doesn’t mean much.  If you think he’s going to get out in front of something panic driven polls say he should avoid, then I have some beachfront land in Nevada you might be interested in.

Greenwald’s points are important ones.  While we have access to 24/7 media and the media, in my opinion, often acts irresponsibly in their reporting, we have the responsibility to fill in the voids and gather the information that paints a more complete picture of what is happening.  One of the reasons for the rise of online media and blogging is a real need and desire by many to do that.  And the two reports by ABC only emphasize that point.

Panic legislation based on biased reporting and hysterical public reaction are no way to run a government.  One of the reasons I often don’t jump on a story right away is I’ve found the first bit of reporting is usually wrong and/or incomplete. Much of it is overly sensational.  I prefer to sit back and let it develop a bit, and gather as much information as I can before offering a view or opinion.  Unfortunately, that is not the media culture we have today, and for the most part we are ill served by it.  We are also ill served by self-serving politicians who deem every crisis an opportunity to advance their careers by pushing more government on us (the Rahm Emanuel rule – “never let a crisis go to waste”).

I’m not sure how we break this cycle, but as Greenwald says continuing it may “produce many more historic disasters than [government] can manage.” I’m not saying what is happening in Japan isn’t critical, dangerous or important. I’m saying instead that the rush to judgment isn’t taking into context what put the Japanese in that situation (quake,tsunami,power outage). If it was we’d understand that the likelihood of such a disaster visiting our nuclear plants is probably about the same as an asteroid of devastating size hitting the earth.

Panic at this time isn’t rational and the hysteria that seems to be building is unwarranted given the context in which the situation developed. Unfortunately I don’t think that is going to stop the panic legislation that will result and, as usual, we’ll all end up being the poorer for it.

~McQ


The fight to subdue the nuclear reactors continues in Japan (Update: video)

This is almost like some of the disaster movies Hollywood has become so fond of the past few years and certainly akin to the “China Syndrome” as it plays out.

But this is real world stuff with real people heroically risking their lives to tame this problem.  There are a lot of unknowns at the moment, and the fight couldn’t be taking place under more adverse conditions.

To give you an idea of how powerful the quake was that caused all the damage that has contributed to the problems confronted by those fighting the nuclear problems, scientists have said that it was powerful enough to shorten the day (by a blink) on which it happened and, get this, move the earth’s axis by up to 25 cm (6.5 inches).

It has already been reported that a Japanese island shifted eight feet, but the earthquake had more of a worldwide impact. The Earth’s 24-hour day was shortened by 1.8 microseconds, according to NASA’s Jet Propulsion Laboratory, reports Voice of America. The temblor shifted how Earth’s mass is distributed.

It was originally estimated to be 1.6 microseconds but NASA’s geophysicist Richard Gross revised the time to 1.8 microseconds – a microsecond is one millionth of a second.

“By changing the distribution of the Earth’s mass, the Japanese earthquake should have caused the Earth to rotate a bit faster, shortening the length of the day by about 1.8 microseconds,” said Gross in an interview with Space.com.

That’s power.  As for the shift:

Last week’s natural disaster didn’t just cost us a microsecond, but it also was able to shift the planet’s axis by 6 ½ inches, or 17 centimeters – although other estimates suggest approximately 10 inches (25 centimeters), reports the Metro UK.

“This shift in the position of the figure axis will cause the Earth to wobble a bit differently as it rotates, but will not cause a shift of the Earth’s axis in space – only external forces like the gravitational attraction of the sun, moon, and planets can do that,” said Gross.

Amazing.  That gives you an idea of reason for the problems faced by those fighting a nuclear meltdown.  Add to that fact that the huge number of aftershocks – up to 15 an hour – and their power – most over 5 – and you begin to understand the challenges they’re facing.

To the problems themselves, I’m sure most of you are following this closely.  For background on what causes a meltdown, here’s a good graphic that explains it rather well.   Scientific American has a number of articles you may find useful for background as well.

One of the better articles I’ve found is in the Wall Street Journal.  It goes into some detail as to what has happened and where they are now in their fight to prevent a meltdown.  Something that isn’t getting the coverage it deserves, or perhaps is just being lost in the volume of news is the fact that not all their problems are found in the reactor cores.  Some of them are also cropping up in the storage area for spent nuclear fuel:

On Tuesday, a fire broke out in the same reactor’s fuel storage pond — an area where used nuclear fuel is kept cool — causing radioactivity to be released into the atmosphere. Tokyo Electric Power said the new blaze erupted because the initial fire had not been fully extinguished.

The problem there, of course, is the storage areas don’t have the containment infrastructure that the reactors do. 

Make no mistake, the problems are very serious.  Tokyo Power and Electric is reporting that up to 70% of the fuel rods in one reactor have been damaged and up to 33% in a second one. 

Radiation levels have risen and dropped all through the crisis.  Winds are presently blowing to the south toward Tokyo, but forecasts have them shifting to the east, which would put any radiation release over open ocean, which means the cloud would eventually dissipate causing little damage.  Right now everything I’m seeing says the 400mSv rate is the average rate for the radiation surges although there is one report saying that one spike went to the 11,000 mSv level for a very short time.  Remember though, the key to radiation exposure is not only the amount of radiation but the duration of exposure.  Obviously 11k doesn’t require much exposure duration at all to be damaging or even fatal.  But as mentioned, the radiation has mostly been in dose rates of up to 400mSv and it surges to that level and then falls away.

Key to getting this all under control?  

Water:

Ironically water–or lack of it–has been the real story at Fukushima for the past four days. The nuclear cores need water to cool them down, and the tsunami swamped Fukushima and initially cut off electricity powering the cooling systems. Then various backups failed, which forced plant operators to pump sea water into the reactors to try to cool them down. The Times initially reported that helicopters might be used to drop water on the pools of spent fuel that are too hot. (Later the idea was discounted.) In short: follow the water.

One of their problem to this point has been the ability to get enough water on the fuel rods to cool them.  They’ve been exposed and so are super hot.  When the water is injected it quickly boils away, faster than they’ve been able to replace it.  There are most likely leaks to contend with as well.   The use of sea water has always been theoretical as a “last ditch” measure if all else fails.  They’re now injecting sea water for real.  Also key to this is Boric acid which aids in the cooling process.  Getting the right mix in such a volatile atmosphere as that found in the reactors must be a nightmare.

So?  So, that’s a bit of an update on where they are in a very rapidly changing situation.  Most “experts” are saying regardless of what happens this should not be another Chernobyl.  That’s primarily because the Chernobyl reactor had no containment facility when it melted down.  And I’ve read any number of experts saying the containment vessels at the Fukushima Daiichi plant are doing their job.  However, there should be concern over the storage areas for spent fuel rods since they have no containment facility.

UPDATE: A couple of interesting vids of Jay Lehr of the Heartland Institute talking about the Japanese disaster (more available at the link):

 

 

 

I tend to agree with him given what I’ve read about 3 Mile Island. My new concern though, as stated, is the storage pools for the spent fuel rods. We’ll see what sort of coverage that gets.

~McQ


The inevitable call by the energy unfriendly left to shut down nuclear power

Of course anyone who is a student of politics knew this was coming. The anti-nuclear crowd, mostly found on the left, couldn’t wait to politicize the earthquake disaster in Japan and call for a moratorium on nuclear power plant construction.

Not that we’ve had a single nuclear power plant constructed here in the US for decades. But this is a call to kill any nascent plans for building any new plants. Right on schedule the expected reaction attempts to build public opinion against nuclear power by invoking "scare" rhetoric. The culprit is Rep. Edward Markey (D-MA):

“I am shocked by the devastation that has already been caused by the earthquake and tsunami in Japan. It is heart-breaking to see the destruction that has already taken place, and to hear of so many people being killed or injured,” said Rep. Markey. “As a result of this disaster, the world is now facing the looming threat of a possible nuclear meltdown at one of the damaged Japanese nuclear reactors. I hope and pray that Japanese experts can successfully bring these reactors under control and avert a Chernobyl-style disaster that could release large amounts of radioactive materials into the environment.”

“I am also struck by the fact that the tragic events now unfolding in Japan could very easily occur in the United States. What is happening in Japan right now shows that a severe accident at a nuclear power plant can happen here," said Rep. Markey.

No Rep. Markey, they couldn’t "very easily … happen here". And while it is obvious the 8.9 quake that hit Japan has severely damaged the Japanese nuclear power plants, it isn’t at all clear that they won’t be able to contain the damage or that a similar accident is bound to happen here.

The Heritage Foundation lays out a few of the salient facts

* The low levels of radiation currently being released will likely have no biological or environmental impact. Humans are constantly exposed to background radiation that likely exceeds that being released.

* The Chernobyl disaster was caused by an inherent design problem and communist operator error that is not present at any of the nuclear plants in Japan.

* There were no health impacts from any of the radiation exposure at Three Mile Island.

* The Nuclear Regulatory Commission does not need to regulate more in response to this. It already regulates enough.

* The plant in trouble in Japan is over 40 years old. Today’s designs are far more advanced. * No one has ever been injured, much less killed, as a result of commercial nuclear power in the U.S.

Obviously those represent the facts at this time when talking about the Japanese reactors and could change. However the other facts stand.  Chernobyl was the nuclear industry’s Deep Horizon.  A one-off occurrence that the Chicken Little’s of this world, coupled with other anti-nuclear groups, have used for years to oppose the expansion of nuclear generated power.  And they plan on trying to add Japan’s troubles to the litany of opposition.

As you might expect, Markey has proposed – wait for it – a moratorium on siting “new nuclear reactors in seismically active areas”.    Any guess who will get to define “seismically active area”?  We have earthquakes everywhere in this country with most of them being so minor they’re not even felt.  Does that qualify for a “seismically active area”?

Let’s not forget that this earthquake Japan suffered along with the resultant tsunami was massive and extremely rare. In fact, it is the largest earthquake in Japan’s recorded history.  The largest earthquake recorded in American history occurred in 1964 off Prince William sound in Alaska coming in at 9.2.   Below, on the map, are the top 15 earthquakes recorded in the US since 1872 (7.3 or above).  The year they occurred is by the marker.  As you can see they’re mostly centered in California with a few here and there in other areas of the US.  South Carolina, for instance, hasn’t see a quake of that size since 1886 – over 100 years.  Missouri not since 1812:

 

earthquake

 

Let’s also not forget that Japan has suffered 275 aftershocks of 5 point or greater.  In fact, since the quake, Japan is averaging 12 to 15 aftershocks per hour.  That too hampers rescue and recovery efforts as well as the efforts to contain the damage at the nuclear sites.

To give you an appreciation of the magnitude of difference between the numbers on the Richter scale measurement of an earthquake, a “5” equals about 474 metric tons of TNT exploding.  A “6” is 15 kilotons.  A “7” is 474 kilotons.   An “8” equals 15 megatons.  And an 8.9 is approximately 356 megatons.  The “Tsar Bomba”, the largest thermonuclear weapon ever tested,  was a 50 megaton device coming in at 8.35 on the Richter scale.

That gives you an idea of the power of the Japanese quake.

Does anyone anticipate that in the vast majority of the continental US?  Of course not.  Is there a history of those sorts of quakes.  Again, for the vast majority of the country, the answer is “no.”  For Japan the answer is quite different.  The islands lay on the “Pacific rim of fire”, one of the most earthquake and volcano prone areas in the world.

But that won’t stop the scare mongers from trying to gin up a movement to not just place a moratorium on “seismically active areas”, but eventually to all areas of the country. 

“Seismically safe” will become the new watchword for the anti-nuke crowd.  And I predict that regardless of the design, they’ll find all of them to be wanting. 

“The unfolding disaster in Japan must produce a seismic shift in how we address nuclear safety here in America,” said Rep. Markey.

No, it shouldn’t.  And we shouldn’t let alarmists like Markey steal a step on nuclear energy.  We have the means and the technology to provide safe nuclear power generation.  It should proceed with an obvious eye on the safety of such plants.   But we do not need to let the scare mongers use this lifeboat incident, this outlier scenario, as a means of slowing or stopping our move to more nuclear powered energy.

We ought to be saying, “split, baby, split”.  Split here and split now.

~McQ


Observations: The QandO Podcast for 13 Mar 11

In this podcast, Bruce, Michael, and Dale discuss the Japanese earthquake and the implications for US nuclear policy, and Pres Obaba’s leadership style.

The direct link to the podcast can be found here.

Observations

As a reminder, if you are an iTunes user, don’t forget to subscribe to the QandO podcast, Observations, through iTunes. For those of you who don’t have iTunes, you can subscribe at Podcast Alley. And, of course, for you newsreader subscriber types, our podcast RSS Feed is here. For podcasts from 2005 to 2010, they can be accessed through the RSS Archive Feed.


Charts of the day – do we really need more teachers?

Apparently the president’s job initiative centers around hiring 10,000 more union teachers.

The reason given is we need to beef up our math and science achievement.  And, as usual, the way to do that is to throw either more money or more teachers at the job.

What everyone ignores, however, is we’ve been doing both for years with no change.  What’s the definition of insanity again?

 

image

 

So for an approximate 10% rise in enrollment, we’ve added 10 more public school employees for every student.  And we’ve also seen the spending go through the proverbial roof as a result.  The normal, everyday, tax paying citizen would most likely expect spectacular results if he or she invested the amount they were taxed in something of their choice.  Instead, they end up screwed again:

 

image

Looking at those two charts, does anyone think the problem is related only to the money spent or the number of teachers?

Japan spends about 5% of its GDP on education, pays its teachers the equivalent of $25,000 US, has average class sizes of 33 and graduates 93% of its students from their equivalent of high school.  South Korea actually spends more of its GDP than does the US (7.35%), pays its teachers a little over $27,000 US, has huge average class sizes (almost 36) and has a graduation rate of 91.23%.  The US’s stats are 7.38% GDP, average teacher’s salary of almost $36,000, average class size of 19 and a graduation rate at a dismal 77.53%.

To most that would signal that something is wrong other than the number of teachers or what we’re spending.  Somehow, however, that message seems never to get through to our political leaders who continually work under the premise that more money and more bodies is bound, at some point, to make it all better.

That thinking, In this case, given the word pictures the two charts paint, it is obviously wrong.  When and how we can get that message across to both sides of the political spectrum remains to be seen.  But if the left wants to invoke the “for the children” canard in an attempt to shame the right into capitulating for the usual remedies, maybe they can put these two charts in their pockets and make one up of the comparative spending and graduation rates and change not only the discussion, but the solution.  My guess the new solution would take less people and less money.  Wouldn’t the taxpayers love that?

~McQ


Observations: The QandO Podcast for 08 Aug 10

In this podcast, Bruce, Michael and Dale discuss the economy, the Democrats’ “Blame Bush” strategy, and the anniversary of Hiroshima.

The direct link to the podcast can be found here.

Observations

As a reminder, if you are an iTunes user, don’t forget to subscribe to the QandO podcast, Observations, through iTunes. For those of you who don’t have iTunes, you can subscribe at Podcast Alley. And, of course, for you newsreader subscriber types, our podcast RSS Feed is here. For podcasts from 2005 to 2009, they can be accessed through the RSS Archive Feed.


I have little sympathy for the Japanese on this subject (update)

It is the annual Hiroshima remembrance in Japan and the usual cries of "outrage" and demands for an “apology” fill the air.

My father fought against the Japanese in WWII on Saipan, Leyte and Okinawa. I have studied the war in detail. I’ve been particularly interested in the planned invasion of Japan.

Okinawa was the first indicator of what that would have been like – it was and is considered a Japanese “home island”. My father was slated to be with the first wave of divisons landing on Kyushu. The technical description of their anticipated condition after a day or so was “combat ineffective”. That means those initial divisions would have been destroyed and unable to continue to fight.

The assumed number of casualties for that first big fight – and it wasn’t even on the main island – was about a million men on both sides. Don’t forget that they had a regular army home defense force of well over a million men and a home defense militia of 14 million. They had with held thousands of kamakazi aircraft and boats back for the expected invasion. And they planned to make a last stand and take as many invaders as possible with them.

Remember also how the territories the Japanese conquered were treated. Korean women forced into prostitution as “comfort women”. The rape of Nanking. Babies tossed around on bayonets.

So when I read things like this –

Moments before the atomic bomb was dropped, my mother’s friend happened to seek shelter from the bright summer sunlight in the shadow of a sturdy brick wall, and she watched from there as two children who had been playing out in the open were vaporized in the blink of an eye. “I just felt outraged,” she told my mother, weeping.

– I had difficulty summoning any outrage myself. The Japanese people supported the war, cheered the victories and reveled in the spoils it brought. They were brutal and murderous conquerers. And they refused to surrender.

After the first bomb was dropped on Hiroshima, the Japanese war cabinet of 6 split in their vote, refusing to surrender. After Nagasaki, they still refused to surrender until, in an unprecedented move, the Emperor intervened and essentially ordered them to do so.

If those who survived the atomic bombings at Hiroshima feel “outrage”, they should look in the mirror. They enabled and supported a regime that “outraged” the world. They cheered and shared in the spoils of a war they started which devastated much of Asia. They supported a brutal, murderous and criminal militaristic war machine that raped and murdered at will. If anyone should be “outraged”, it is those who suffered under the horrific but thankfully short Japanese rule of that time. If anyone should be apologizing yearly, it is the Japanese.

UPDATE: Richard Fernandez also discusses the subject.

~McQ

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Krugman: The “Nipponisation” of the World

After a lot of partisan “happy talk” about how the Obama administration is handling the economic crisis here, Paul Krugman goes on record saying the world is doomed to suffer Japan’s lost economic decade on a global scale.

The thing about Japan, as with all of these cases, is how much people claim to know what happened, without having any evidence. What we do know is that recessions normally end everywhere because the monetary authority cuts interest rates a lot, and that gets things moving. And what we know in Japan was that eventually they cut their interest rates to zero and that wasn’t enough. And, so far, although we made the cuts faster than they did and cut them all the way to zero, it isn’t enough. We’ve hit that lower bound the same as they did. Now, everything after that is more or less speculation.

For example, were the problems with the Japanese banks the core problem? There are some stories about credit rationing, but they are not overwhelming. Certainly, when we look at the Japanese recovery, there was not a great surge of business investment. There was primarily a surge of exports. But was fixing the banks central to export growth?

In their case, the problems had a lot to do with demography. That made them a natural capital exporter, from older savers, and also made it harder for them to have enough demand. They also had one hell of a bubble in the 1980s and the wreckage left behind by that bubble – in their case a highly leveraged corporate sector – was and is a drag on the economy.

The size of the shock to our systems is going to be much bigger than what happened to Japan in the 1990s. They never had a freefall in their economy – a period when GDP declined by 3%, 4%. It is by no means clear that the underlying differences in the structure of the situation are significant. What we do know is that the zero bound is real. We know that there are situations in which ordinary monetary policy loses all traction. And we know that we’re in one now.

Shorter Krugman, “we’re in new territory in terms of the size of the problem, but it is all eerily similar to what happened to Japan”. Unfortunately our reaction has been eerily similar to what Japan did as well.

Krugman’s bottom line:

WH: So, one way to think about it is that self-reinforcing financial crises rooted in overstretched, overborrowed companies and governments in less developed countries – like those in Argentina and Indonesia, which were amazingly destructive in the 1990s and 2000s, but localised – are now playing out in the developed world?

PK: There are really two stories. One is the Japan-type story where you run out of room to cut interest rates. And the other is the Indonesia- and Argentina-type story where everything falls apart because of balance-sheet problems.

WH: So in a nutshell your story is …

PK: The “Nipponisation” of the world economy with a bunch of “Argentinafications” playing a role in the acute crisis. But even after those are over, we have the Nipponisation of the world economy. And that’s really something.

And of course, implicit in the “Nipponisation” of the world economy is the “Nipponisation” of the US economy – something we’ve been talking about for some time. Now, add “cap and trade” and “health care reform” into the mix.

What will we be wishing we were suffering when that all kicks in, should it pass? Nipponisation, of course. As bad as lost decade or two might be, it would be heaven compared to the economic carnage those big tax and spend programs will inflict on a very weak economy here in the US. And that, of course, will ensure the “Nipponisation” of the world economy.

~McQ

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