Tags: Schiff | Talk | Quake | Boost | Japan | Economy

Schiff: Talk That Quake Will Boost Japan Economy is Wrong

Thursday, 17 Mar 2011 09:13 AM

The notion that rebuilding Japan's infrastructure in wake of the devastating earthquake will improve economic output there is wrong, says Peter Schiff, president of Euro Pacific Capital.

The country is basically not adding new infrastructure and is therefore, not moving forward, economically speaking.

External shocks don't fuel economic gains when the stimulating rebuilding effects are outweighed by longer-term opportunity costs.

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Peter Schiff
"The idea that a natural disaster is good for the economy because destroyed infrastructure needs to be rebuilt is complete bunk," says Schiff, according to CNBC.

"Resources used to rebuild are not available for other purposes. So instead of adding new infrastructure, or producing additional goods or services, the Japanese now need to use those resources merely to replace what they lost."

Others agree that reconstruction isn't going to seriously bolster the Japanese economy.

"A post-disaster cleanup boosts a country’s GDP in the short run, but hurts the government’s operating budget and increases its debt burden to the extent debt is used to fund the clean-up," Sean Egan, president of Egan Jones ratings agency, tells CNBC.

"If disasters were a net positive economically, then governments should make a policy of destroying a portion of its sound infrastructure on a regular basis."

In any event, reconstruction will be challenging because the damage is so widespread, says Jun Yang, president of the Hong Kong branch of the American Society of Civil Engineers.

"In my view it would take five to 10 years to rebuild or repair," Yang tells NPR.

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The notion that rebuilding Japan's infrastructure in wake of the devastating earthquake will improve economic output there is wrong, says Peter Schiff, president of Euro Pacific Capital. The country is basically not adding new infrastructure and is therefore, not moving...
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2011-13-17
Thursday, 17 Mar 2011 09:13 AM
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