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Q&A: The Economic Impact Of The Crisis In Japan

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Q&A: The Economic Impact Of The Crisis In Japan

Rebuilding Japan

Q&A: The Economic Impact Of The Crisis In Japan

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Of course, the primary concern of Japan and people around the world now is the loss of human life. But many people are also worried about the economic consequences in Japan and around the world.

And we've asked David Kestenbaum of NPR's Planet Money Team to look into the economic impact of this disaster. And David joins us now from New York. Welcome.


SIEGEL: We've heard several times that this is the greatest disaster since the end of World War II in Japan. We know it's a huge natural disaster. Is it a huge economic disaster?

KESTENBAUM: So this week I've been talking to economists and experts and analysts inside Japan and outside. And what they've really reminded me of is that, since World War II in particular, Japan has developed a very advanced and resilient economy. So people can take some comfort that when this is over, it's unlikely there will be serious long-term economic impacts.

I mean, the region affected, just look at the numbers, is only 4 percent of the country's gross domestic product. And it's only part of that region that was affected. The main question mark that people raised at this point is the situation with the nuclear reactors over there.

SIEGEL: On the other hand, we've heard estimates that rebuilding could cost hundreds of billions of dollars. I've seen some people speculate that perhaps that kind of spending will amount to a huge public works construction project; a lot of roads and bridges and buildings being rebuilt - a stimulus.

KESTENBAUM: It is true that when you rebuild, often you see a bump in GDP because you're hiring people to rebuild those roads, rebuild all those houses. And hundreds of billions of dollars, that's a large number. But you have to remember that the money to do that has to come from somewhere, right? And that means Japan is going to have to either raise taxes or cut other things, or borrow more money.

And Japan has a lot of debt already. In fact, Japan is one of the most indebted countries in the world. That has more debt relative to the size of its economy than the United States does. But it's also true that people are not worried about Japan in the same way they're worried about Greece. People are still willing to lend monies to Japan. We're still willing to buy Japan's government bonds.

So they can borrow money at a very low rate right now. It does seem that when the time comes to rebuild, if they need to borrow the indications are that that will not be a problem for them.

SIEGEL: Japan, of course, is a major trading partner of the United States: electronics, cars. What would be the effect of all this on the U.S. economy?

KESTENBAUM: So another thing that I'm reminded of in talking to people about this is that companies, after previous natural disasters, have really become obsessed with what they would call diversifying their supply chain, making sure they have multiple places to buy things from, multiple places to buy their flash memory cards from, multiple ways to ship their cars. So there's a whole lot of redundancy in the system.

So what you might expect are some short-term disruptions. But long-term, these things tend to fix themselves surprisingly quickly.

SIEGEL: The most recent huge natural disaster in Japan was the Kobe earthquake of 1995. What were the economic consequences of that?

KESTENBAUM: Actually, I have a chart of Japan's GDP. And if you look, it's very hard to find the Kobe earthquake there. The economy just kept growing. And this is true with a lot of natural disasters, at least with advanced economies. It's very hard, if you're sort of an alien looking at the economic data, to see that it had even happen. The GDP increased after the Kobe earthquake.

But, you know, GDP doesn't measure lost buildings. It doesn't measure lost homes. It doesn't measure lost lives. There are awful lot of things that just do not show up in the economic data.

SIEGEL: Okay. David, thanks.

KESTENBAUM: Thank you.

SIEGEL: That's David Kestenbaum of NPR's Planet Money team.

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