Wednesday, March 16, 2011

One of these economists is not like the others

A bit of a follow-up here to last night's excitement wherein Stephen Harper, Economist™, concern trolled to the nation that uh uh, this is not the time for an "opportunistic" election given the Japanese earthquake.

Let's look into what economists are saying then. Here's Krugman on the impact of the Japan situation:
Life and business go on; so I guess we have to talk about the economic impact of the Fukushima nightmare.

One set of impacts involves disruption of supply chains: Japanese chips and other components are an important part of world manufacturing — you really need to think of China, Korea, Japan and so on as being part of an East Asian manufacturing complex –and it’s not clear yet just how much damage will be done.

But what I’m hearing a lot is worries about financial impacts. Japan will clearly have to spend hundreds of billions (dollars, not yen) on damage control and recovery, even as revenue falls thanks to the direct economic impact. So Japan will become less of a capital exporter, maybe even a capital importer, for a while. And this, so the story goes, will lead to soaring interest rates.

But so far, um, not.
Then after a few charts and some econospeak he concludes:
And yes, this does mean that the nuclear catastrophe could end up being expansionary, if not for Japan then at least for the world as a whole. If this sounds crazy, well, liquidity-trap economics is like that — remember, World War II ended the Great Depression.

So, back to Japan: I’m terrified about the possible loss of life; nervous about the disruption of world production; not worried at all about the impact of Japanese borrowing on world bond markets.
More, including the recommended link:
I suspect they did not mention Japan because little information is known about the economic risk or they don’t perceive it to be the primary risk in the US outlook. Indeed, we have been down this road before with Hurricane Katrina - even very large disasters in advanced economies appear to have limited overall economic impact, although the regional impacts could be quite severe. I often wonder if economists have a tendency to initially overestimate the potential impact of such events as they believe the economic impacts must somehow reflect the human impact, or that if they don’t play up the economic impacts they will be seen as downplaying the human impact. I tend to be less concerned about the economic impact (particularly over the longer term; market economies have proven to be remarkably resilient) and instead am much, much more concerned about the very devastating and long-lasting human impact of this tragedy. I recommend the guest post at Econbrowser on this topic. To be sure, policymakers will be watching this and other situations closely, but I suspect they would turn to this kind of research as a guide and conclude for now that the global economic impact will be largely transitory.
So that's an early read from some economists. Think we can treat Mr. Harper's economic theories as they relate to a potential election here with a healthy dose of skepticism.