Japan Says Thank You!

Japan, Energy Intensity and the Kyoto Protocol

As part of my ongoing posts on Japan (here) I came across an interesting statistic in a paper by Clive Hamilton and Hal Turton on Determinants of emissions growth in OECD countries. Over time, the OECD and EU countries have been reducing their energy intensity (TFC/GDP) where TFC is Total Final Consumption of energy and GDP is Gross Domestic Product. Japan has not reduced energy intensity to the same degree (see the graphic above). From the Hamilton and Turton paper:

"Japan has not improved as much as other countries, a result that can be attributed to a combination of events prior to 1982 including economic restructuring that replaced highly energy-intensive industries and pressures from the 1970s oil crisis that led to a highly energy-efficient economy".

Why is Japan as an energy intensity outlier interesting or important? Consider a simple model that underlies a lot of thinking about environmental impacts (e.g., the IPAT equation, the Kaya Identity and the Environmental Kuznets Curve):

Population growth (N above and P in the IPAT equation) under a given level of affluence (A in the IPAT equation and q above) generates output (Q). A given level of technology (T in the IPAT equation and e above) generates a certain level of energy use (E), that is, energy intensity. Energy intensity generates an environmental impact (C for CO2 emissions in this case). The lower the energy intensity, the less the environmental impact.

The fact that Japan has had relatively stable energy intensity for much of the late 20th century and, as a result of the 2011 earthquake and tsunami, might have to phase out its nuclear power plants means that, in the future, we can expect an increase in carbon emissions (one estimate, here, is for a 10% to 37% increase). Japan had planned on using increased nuclear power to reduce CO2 emissions and meet its commitments under the Kyoto Protocol. As a result of the earthquake and tsunami, Japan is unlikely to meet its emission targets.

Will Japan Recover? Maybe Not!

On CNBC's Fast Money today, John Mauldin described the Japanese economy as "a bug in search of a windshield". In the next 18 - 24 months, Mauldin predicts that the Japanese economy will implode. No one will lend Japan money at reasonable interest rates and the Yen is going "into the tank".

The video above provides a pretty clear statement of the prediction that Japan will not recover. Coupled with my last post (here), hopefully it will be interesting to see what forecasting models might have to say.

Will Japan Recover? Yes, Maybe or No?

On Fareed Zakaria GPS last Sunday, Sony CEO Sir Howard Stringer observed in the video above that Japan's culture of calm in response to devastating crises will not only allow it to recover but also to rebuild, make changes in the economy and re-emerge as a more dynamic country than before the crisis.

Japan was certainly able to dramatically recover from World War II. The Japanese post-war economic miracle, however, was followed by the world oil crisis in 1973, the asset price bubble in 1991 and the "Lost Decade" 1991-2000. Understanding whether Japan will recover from the 2011 earthquake, tsunami and nuclear crisis should depend, to some extent, on an accurate understanding of how Japan responded to prior historical crises.

A lot has been written about Japan in the late 20th century. What is particularly interesting is the bubble-and-collapse history compared to the suggested policy responses. Most of the writers seem to be arguing that some type of policy response would have (counterfactually) prevented or at least diminished the period of collapse after the bubble. However, if the Japanese economy was returning to a dynamic attractor after each bubble, there is really little that could be done to have prevented the return.

The 2011 earthquake, tsunami and nuclear crisis coupled with the atomic destruction of Hiroshima during World War II is a shocking history for any country to endure. Over the next year (or however long it will take), I'd like to try to understand Japan's late 20th century economic history and deepen my connection to the Japanese people. Here's my current reading list which will certainly expand over time:

• Paul Krugman The Return of Depression Economics and the Crisis of 2008
• Herman Kahn The Japanese challenge: The success and failure of economic success.
• Ezra Vogel Japan as Number One: Lessons for America.
• Edward Denison and William Chung How Japan's Economy Grew So Fast: Sources of Postward Expansion

Other books on my reading list:

• Christopher Wood The Bubble Economy: Japan's Extraordinary Speculative Boom of the '80s and the Dramatic Bust of the '90s.
• Takatoshi Ito, Hugh Patrick and David E. Weinstein Reviving Japan's Economy: Problems and Prescriptions
• Gary Saxonhouse and Robert Stern Japan's Lost Decade: Origins, Consequences and Prospects for Recovery.
• Richard Koo The Holy Grail of Macroeconomics: Lessons from Japan's Great Recession.

UW Madison Professor Discusses Honshu Quake and Tsunami

UW-Madison professor discusses earthquake, tsunami: Greenbay fox11online.com

I'm currently auditing Oceanography 105 at UW Madison.

Harold Tobin, interviewed in the video above, is the instructor.

My previous post (here) was based on his comments in class.

Honshu, Kobe and the Disaster in Japan

Japan's economy has been on a cyclical roller coaster starting with the attack on Pearl Harbor in World War II, the bombings of Hiroshima and Nagasaki, the Japanese economic challenge in the 1980s, through the asset price bubble from 1986 to 1991, and continuining with the current earth quake near the coast of Honshu, Japan.

The first graphic on the left, from the USGS, shows the main shock and aftershocks. The second graph of the 1995 Kobe earthquake shows that Japan sits at the intersection of three tectonic plates, the Pacific Plate, the Philippine Plate and the Eurasian Plate. What is of particular concern is that the Honshu quake might have destabilized the Philippine Plate and made it more earthquake prone.

The concern is that the world's largest city, Tokyo, sits at the intersection of these three plates.