Standford, CT (PressExposure) March 22, 2011 -- With the news from Prime Minister Kan that the budget deficit of Japan's economy is more than twice the country's GDP (as at June 2010), we could see an international fall-out of nuclear proportions. As if it's not enough that most of the major European economies are struggling with massive debt, here we have the world's second biggest economy announcing that things can only get worse if austerity measures aren't introduced right away.
To European ears, this all sounds mightily familiar. And yet, out of all this clamour, what conclusions have been drawn from what has been widespread and collective economic mismanagement? To say this could be the end of Capitalism probably has too much of a Doomsday ring about it. On the other hand, one doesn't have to be an economics expert to see that austerity measures being pursued throughout the world will surely have a recessionary effect.
Taking spending power out of people's pockets means they have less to spend on goods and services; businesses and business turnover will suffer; tax revenues will fall and unemployment payments rise. So why are so many countries facing such unprecedented levels of fiscal debt? Could no-one in any of these countries (G7 or G20 economies) see what was happening? [http://www.semantifi.com/search_apps/Japan_GDP/1396]
It turns out that successive Japanese governments have been borrowing heavily since their economic bubble burst 20 years ago. Ongoing deficits have been shored up by issuing long-term government bonds which Premier Kan now says is 'unsustainable'. What is so surprising about this is that Mr Kan was Japan's Finance Minister before recently assuming his Prime Ministerial role.
Now we have the unedifying spectacle of a new UK government preparing new economic forecasts by the same advisory teams who'd worked for Labour. To go back to Japan and all the other countries in financial turmoil. The problem seems to be not a failure of Capitalism as a philosophy, but more a failure of the reporting mechanisms that support governments with their collection and interpretation of economic data.
Some may also argue that the much-vaunted wealth that knowledge-based economies were supposed to deliver has been shown to have no credence. To wit, China and India with their mixed economies which are nevertheless underpinned by a strong manufacturing base.
The danger with IT businesses - and to a lesser extent bio-technology - is that they're basically 'service' industries. Yes, they generate efficiency benefits, jobs and cash injections into various economies. What they should do is work more closely with manufacturing industry rather than as the introspective harbingers of a new world economic model.
This is a very complex subject with lots of side-shows. On the other hand, the ramifications of the economic news coming out of Japan, the UK and EU are a threat to economic and political stability.