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The Natural Proxy for Economic Disaster
Mother nature has her ways of warning her tenants that an unfortunate event is about to transpire. Whether it’s a red sky in the morning, fruits that begin to soften, or an onset of violent waves, she puts caution in the winds when she plans on lashing out. Japan has a rather hilly economic history that has been stained by environmental disaster. In the 1950s and ‘60s, the Japanese economy was growing rapidly. Significant investment in industry and infrastructure from both the private and public sectors were the main drivers of growth. Industrialization increased manufacturing capacity, created a strong labor market, and led to a rise in household savings and disposable income. The investment in industry made factory productivity more efficient and, for the first time in a long while, Japan was able to achieve more output per unit of input. The shift from a low-producing agriculture driven economy to high-producing manufacturing, mining, and construction driven economy caused Japan’s economy to swell. However, the industrial revolution left horrendous affects on the Japanese people. Outbreaks of Minamata disease became more prevalent throughout the island as more fish were poisoned from rising mercury levels in the waters. Chisso, a Japanese company, killed hundreds of local people when they dumped methymercury into the sea. The air in a port in Mie Prefecture became so polluted from nitrogen and sulfur dioxide emissions that it gave people asthma and bronchitis. Photochemical smog from automobile and industrial manufacturing also contributed to the increase in respiratory conditions. The consequences of Japan’s environmental irresponsibility from the 1970s are still felt by the Japanese people today. It was only until the government faced extreme civil unrest and had to deal with the devaluation of the yen that officials began to regulate corporate practices. And when the problems were finally addressed, investment dried up, taxes increased, and the economy tumbled. The spoiled environment was a warning sign that the economic growth was unsustainable, and I think China can learn from Japan’s environmental negligence. China consumes more coal than any other country and is responsible for over a quarter of the world’s carbon dioxide emissions. This year, Beijing hit 900 on the Air Quality Index- 875 points higher than the 25 points recommended by the World Health Organization. China is the most polluted country in the world, and it’s people are suffering as a result. Although China’s inflationary pressures are much milder than Japan’s in the 1970’s, social unrest in China will be far worse than Japan’s. The Chinese government is trying to mask the credit crisis, while continuing to produce signs of growth by artificially inflate the housing market. The economy is slowing down, despite the distorted statistics that lead the market to believe otherwise. Ironically, the Chinese government has passed laws that could keep the country clean. But unlike Japan, China’s government is so decentralized that the state cannot enforce them on the local governments. Like Japan in the ‘70s, China’s economic forecasts are starting to resemble its’ weather: a high of smog today, tomorrow, and next week (or “fog”, as it’s known in the Chinese media). The ecological disasters in China a sign that it’s rapid economic growth is unsustainable. By overlooking the inconvenient truths, Japan ignored mother nature’s warning signs that unfortunate events were about to transpire. Luckily for China, they have time to listen to the warnings that the smog is whispering and make strides towards an ecological change before it’s too late.
Domestic News
- Market Update Futures are down, which could be an indication of lower consumer confidence.
- The University of Michigan/Reuters consumer sentiment index will be released at 9:55, and it expected to decline to 78 in September from 82.1 in August.
International Updates
Asia
- Market Update Markets are up, despite a firmer yen weighing on Tokyo shares.
Europe
- Market Update Markets are down after Carney comments that he sees no need to extend QE.
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