Larry Summers – Japan quake may lead to temp. GDP increments

13 Mar

Firstly, this is a tragedy and our thoughts are with the people who have suffered in this quake. This is the problem when we have a distorted view of what economic growth is. Indiscriminate spending does not contribute to economic growth. Summers basically believes in the ‘broken window’ philosophy and quite clearly one has to recognise that the spending that will ensue to rebuild Japan will not contribute to the productive capacity of the nation; rebuilding Japan will require increased borrrowing from Japanese citizens to rebuild buildings and infrastruture that were already functioning and efficient. So this will not contribute to GDP growth but it will add to their structural deficit and heighten their bond market awakening.

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