No one could have foreseen the massive earthquake and resulting tsunami that hit Japan last week.  Massive loss of life, with entire towns washing away, and the rest of the world watching in horror.  here in California , the news hits especially close to home, as we all live with an understanding that someday the big one could hit for us, as well.  while the events in Japan are tragic, and the short-term affects real, the intermediate to long-term global economic impact is probably minimal. Japan accounts for around 9% global GDP and the most severely impacted regions account for roughly 15% of Japanese GDP – thus the directly-affected region comprises something like 1.4% of global economic output. Moreover, lost Japanese output from the incident will likely be offset by rebuilding efforts. the Japanese government already has rebuilding plans in the works, and the Bank of Japan (BOJ) has substantially increased its liquidity operations and doubled its asset purchase program.

So, tragic destruction and subsequent rebuilding will result in winning and losing sectors/companies, and the broad economic impact should be minimal outside Japan . to wit, select industries and companies sold off severely on the news while others rallied sharply, even within Japan as of yesterday.

But in the midst of all this, let’s remember this is still a bad thing, it’s just not a super bad thing economically speaking. on more than one occasion the last couple of days I’ve read stories to the effect of: History Shows Rebuilding Spurs Economy. Wealth destruction does not create net wealth creation—it’s simply an example of the “fallacy of the broken window” harkening all the way back to Bastiat. Certainly, you’ll almost always find me on the side of “economies are more resilient than people think”, but one-time demand-side boosts and a residual boost on restocking do not a recovery make. Ultimately, the effort to rebuild broken stuff is productivity that could be better spent elsewhere.  from my desk at Fisher Investments, that’s it for this Tuesday.

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