Given Japan’s diminishing economic influence in the world, particularly as it relates to GDP growth as opposed to the absolute level of GDP, this disaster will have negligible effects on world output and growth. So far, the effects seem to be mainly related to supply chain disturbances, such as various auto, electronic, and high-tech components that are manufactured in the affected areas. I would call these temporary blips that represent short-term headaches but have no long-lasting significance.
What impact will this have on manufacturing in Japan and how will this affect the U.S. market?
Japanese manufacturing in the affected areas will likely go down; Japanese manufacturing in the non-affected areas will likely pick up the slack. Japanese investment in infrastructure will go up, also bolstered by fiscal and monetary stimuli. As stated before, the U.S. will see supply-chain disturbances. This might also boost sales by U.S. auto manufacturers as they start capitalizing on their recently instituted improvements and start exploiting weaknesses of the Japanese auto manufacturers.
As import bans on Japanese food products widen, what long-term effects do you predict will erupt because of the disaster?
I understand that, as reported by the New York Times, in the last couple of days, only about 4 percent of the U.S. food supply comes from Japan. Moreover, Japan is categorically not a low-cost food producer. My impression is that Japanese food exports cater to a specialized, non-essential niche market. Japan is neither Australia, nor the United States, nor Argentina. That is the first-order effects should be negligible. On the other hand, if the radiation leaks affect Pacific fishing, that would be a bigger problem. That would be an environmental engineering question that you would need to pursue with such experts.
How will this impact what you teach Pace students in the future?
How one can incorporate Black-Swan outcomes in planning and the importance of behavioral economics in decision making. People are short-sighted and have short-memories. So, this disaster will have important consequences for current decisions but will soon be forgotten, just like a lot of people have mostly forgotten the financial crisis of 2008. I have already incorporated the crisis into my teaching of MBA-level econ courses, when I asked students to fully evaluate all the costs and benefits of all energy sources, by asking them to fully price all the externalities of each energy alternative.
What do you think is the greatest impact on the United States and the world?
Short-term loss of confidence and fear that will soon be forgotten. Somewhat of an increase in the cost of nuclear energy as the world will realize that they can’t do without it, but that they have to make it somewhat safer, with the full understanding that no technology is 100 percent safe. I bet you many more people die from the pollution from coal-powered power plants than they do from the radiation of nuclear power plants. In fact, if I recall correctly, the effects of coal pollution is in the hundreds of thousands. [Editor’s Note: A recent study done by the World Health Organization supports this statement.]
How far reaching are the effects of this disaster and how might this change Japan’s economic strategies going forward?
Japan has dealt with earthquakes and other natural disasters for centuries. They are an ancient, mature, stoic society steeped in their religious traditions. Other than minor technical adjustments around the edges (such as increasing the safety of nuclear power plants, which will ultimately increase costs), their fundamental life philosophy will not change.
The Indian Point Energy Center is located just 38 miles north of New York City. In addition to being close to the Pace campuses, the Ramapo Fault line is a mere mile from the facilities. If a situation similar to Japan’s were to occur here, how might our experience differ from Japan’s?
Our experience would be much worse. Our societal norms are diametrically opposed to Japan’s. They are stoic; we are not. They are long-term focused; we are short-term focused. They are much better at sacrificing for the greater good; we are totally individualistic and egotistical. Our current political mess and our performance in international educational rankings is proof of what I am saying. Another example: a few years ago due to an energy crisis, the Japanese government decreed that thermostats in the summer should be set higher, so even in five-star hotels like the Imperial in Tokyo, people were uncomfortable with the ambient temperature. Can you imagine doing that in the United States? There would be a gazillion law suits.
For more information regarding the financial impact of the crisis in Japan, see the Pace University press release featuring Professor Abuaf.
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