Is there a way forward for Japan’s post-Fukushima fears?

Radiation and reason
Cover art: Spencer Weart’s “The Rise of Nuclear Fear”; Wade Allison’s Radiation and Reason

The survivors of Japan’s Tohoku Earthquake have suffered so much. The former residents of the Fukushima exclusion zone are bearing the additional stress of nuclear fear. Polling of former residents indicates that fewer than one-half may be willing to return. There is so much radiation fear and distrust of government.

Radiophobia is common in Japan, probably explaining why the government enacted radiation standards much lower than scientifically justified; and why politicians nourished expectations of nuclear power perfection. Combining this history with the mismanagement of the Fukushima accident has put Japan in a very unfortunate position:  Japan’s economy is damaged by importing fossil fuels to replace the almost 30% of their electricity generation that has been closed. And the widespread radiophobia may prevent restarting the majority of Japan’s 43 operable reactors. In addition to Japan’s economic stress, the fear of nuclear catastrophe is causing Japan to share their fear globally – as unnecessary carbon emissions.

How to help the Japanese people shift to a realistic view of the benefits vs. risks of restarting their nuclear fleet?

Consider the segment of the American population with similar fears of apocalyptic nuclear accidents. If you wanted to form a Presidential Commission to evaluate and report on the entire range of energy options – who would you nominate that could influence the fearful? Who would I nominate? George P. Shultz is an easy choice. If he accepted, the rest of the recruiting would go well. My next call would be to Burton Richter. Besides his deep competence and gravitas he has long experience with just this sort of public policy responsibility, and practical experience with getting things done in government. As an example Burt has been a key contributor to the California Council On Science And Technology project “Policies for California’s Energy Future”. My third pick would be Jane Long – who coincidentally was the very effective leader of the enlightened CCST project.  

Surely Japan has public figures of similar skills and stature. Who are they? How much impact could such an “Japan Energy Commission” have on public fears? Could such a commission get the ear of Japan’s heavily anti-nuclear media?

A complementary approach could be to adapt Robert Stone’s concept of building a high-credibility story around “switchers”. If Robert himself could be enlisted to this project he would be a powerful agent of change. I’m sure he could train a Japanese counterpart. As a director Robert knows how to organize the effort to tell a compelling story. There must be Japanese anti-nuclear campaigners who have switched?

Regarding funding of such a project, moving Japan towards a pragmatic energy policy isn’t just for Japan’s benefit. Earth’s atmosphere will obviously say “Thank you” for reduced Japanese emissions. Emissions aside, Germany plus Japan’s nuclear shutdown is having a big negative impact across the globe. If Japan restarts most of their nuclear fleet that will send a very helpful signal.

 

Japan’s Slow-Motion Crisis

Smart commentary from Ken Rogoff at Project Syndicate:

(…) So what gives? First, things look a lot grimmer when one gets two hours outside of Tokyo to places like Hokkaido. These poorer outlying regions are hugely dependent on public-works projects for employment. As the government’s fiscal position has steadily weakened, the jobs have become far scarcer. True, there are beautifully paved roads all around, but they go nowhere. Old people have retreated to villages, many growing their own food, their children having long abandoned them for the cities.

Even in Tokyo, the air of normalcy is misleading. Two decades ago, Japanese workers could expect to receive massive year-end bonuses, typically amounting to one-third of their salary or more. Now these have gradually shrunk to nothing. True, thanks to falling prices, the purchasing power of workers’ remaining income has held up, but it is still down by more than 10%. There is far more job insecurity than ever before as firms increasingly offer temporary jobs in place of once-treasured “lifetime employment.”

Although hardly in crisis (yet), Japan’s fiscal situation grows more alarming by the day. Until now, the government has been able to finance its vast debts locally, despite paying paltry interest rates even on longer-term borrowings. Remarkably, Japanese savers soak up some 95% of their government’s debt. Perhaps burned by the way stock prices and real estate collapsed when the 1980’s bubble burst, savers would rather go for what they view as safe bonds, especially as gently falling prices make the returns go farther than would be the case in a more normal inflation environment.

Unfortunately, as well as Japan has held up until now, it still faces profound challenges. First and foremost, there is its ever-falling labor supply, owing to extraordinarily low birth rates and deep-seated resistance to foreign immigration. The country also needs to find ways to enhance the productivity of those workers it does have.

Inefficiency in agriculture, retail, and government are legendary. Even at Japan’s world-beating export firms, reluctance to confront the ingrained interests of the old-boy network has made it difficult to prune less profitable product lines – and the workers who make them.

As the population ages and shrinks, more people will retire and start selling those government bonds that they are now lapping up. At some point, Japan will face its own Greek tragedy as the market charges sharply higher interest rates.

The government will be forced to consider raising revenues sharply. The best guess is that Japan will raise its value-added tax, now only 5%, far below European levels. But is it plausible to raise taxes in the face of such sustained low growth?

Investors who have bet against Japan in the past have been badly burned, grossly underestimating the Japanese people’s remarkable flexibility and resilience. But the fiscal road ahead looks increasingly perilous, with political consensus fraying badly in recent years.

In the end, are foreign leaders right to scare their people with tales of Japan? Certainly, the hyperbole is overblown; the Chinese, especially, should be so lucky. But nor should apologists for deficits point to Japan as reason to be calm about outsized stimulus packages. Japan’s ability to trudge on in the face of huge adversity is admirable, but the risks of crisis ahead are surely greater than bond markets seem to recognize.

Japan's debt

Japan looks like a pending train wreck to me: 0.1% growth since 1991, a rapidly aging population, debt to GDP destined to pass into the 200%+ range. But the credit markets do not agree with that gloomy assessment. The home bias (93%) is the main reason that Japan has been able to carry the high debt service. And the government’s balance sheet is still in the black with financial assets well in excess of the debt.

(…) Even the bears acknowledge that there is scant likelihood of Japan blowing up in the short term. There are several reasons to remain calm, notably the remarkable loyalty of Japanese debtholders over the past 15 years. By some estimates more than 93% of Japanese debt is held domestically, which means that the government need never default because it could simply print money to pay the debt off.

This home bias also helps explain why, though the stock of debt is huge, debt-servicing costs as a percentage of GDP have been relatively low compared with Japan’s OECD peers (see chart). Even at the peak of their recent run-up, ten-year Japanese-government bonds only yielded a miserly 1.43%, but in a deflationary environment they were still attractive to Japanese investors in real terms. What’s more, the government is the world’s largest creditor, with plenty of foreign assets to sell. And Japanese citizens are sitting on another {Yen}1,410 trillion of financial assets. These comfortably exceed the government’s debt. As a last resort they could be heavily taxed if the government ran into trouble.

Please continue reading Tackling Japan’s debt: A load to bear | The Economist.

How similar to Japan are the challenges in the rich world? This is not clear to me. I think the Federal Reserve’s actions and the public statements telegraph that the board of governors has been very worried about preventing a slide into the deflationary feedback loop. FYI, there is a bit of light in Same chords, different tune, including a useful chart summarizing the relative financial balances: