Thoughts of an unserious economist

William Pesek writes:

No serious economist thinks Japan is going to crash.

This charming little argument from intimidation reminds me of the endless parade of pundits proclaiming that all the "serious" people supported the War in Iraq. Or, for that matter, all the "serious" mockery of housing bubble predictions.

It seems most people fall into a fallacy encouraged by standard macroeconomic thinking that savings automatically produces something useful and that all "productive capacities" are equally good. All investments are particular - they are to make or do something. Market action equalizing marginal benefit *normally* produces a very good set of particular investments so it's an acceptable approximation to view any investment as equally good. But markets do fail, and they can also be distorted. If this happens the investment is wasted - perhaps partially; perhaps totally.

Japan has a huge productive capacity, but if that productive capacity is for export products that nobody will buy for years, then it's virtually worthless - regardless of how much people thought it was worth last year, or the effort put into creating it. Likewise Japan's vast savings, insofar as they own worthless productive capacity or assorted foreign bonds that can't be paid, are also worthless.

If Japan's exports continue down 35% they will crash. Hard. Are the "serious" economists going to be wrong again?