Tokyo earthquake - global impact?

[andyandy]

ok this is a hugely speculative OP,

what would the regional and global impact of a major earthquake in Tokyo be?

Every time [a minor earthquake strikes, it is] a reminder to the country's capital, Tokyo, that it is long overdue "a Big One".

The last major quake in the city was in 1923, and records suggest the geologically precarious Kanto region - where Tokyo in located - will experience one of a similar size about every 70 years.

The 1923 quake, known as the Great Kanto Earthquake, killed more than 100,000 people. Although building and safety standards have greatly improved since then, experts predict that a major quake in the capital could still kill several thousand people and shake the world's financial markets.

The urban density of Tokyo - home to more than 12 million people crammed into an area of just over 2,000 sq-km - therefore puts it at great risk.

A government earthquake panel said in August that there was a 70% chance of a quake around magnitude 7 hitting Tokyo in the next 30 years. The city government has predicted a quake measuring 7.2 could kill more than 7,000 people and injure around 160,000.

http://news.bbc.co.uk/1/hi/world/asia-pacific/3950315.stm

obviously there is no definitive answer, simply because it depends on the actual size and location of any future quake, nevertheless scenario predictions should be possible, based on that which we currently know about global-interconnectivity....

so if Tokyo catches a cold, how hard will the world sneeze?

 

[andyandy]

some studies seem to have been done from a US-centric perspective....

Many have speculated about the real effects of disaster, but these effects have been seldom observed. There are several instances where a natural disaster has triggered a depression. Two of these instances are: (1) the Dust Bowl period of the 1930s in the United States, and (2) the Managua earthquake. But even in these instances, the natural event was accompanied by man-made events, the stock market crash and a political revolution, respectively. Counter examples are clearly more plentiful.

So, why do some disasters trigger or at least accompany severe economic contractions and others do not? The answer lies in the underlying strength of the economies affected. The United States has learned from Managua, Nicaragua, and Johnstown, Pennsylvania, where it has been observed that disasters tend to accelerate ongoing economic and social processes that were working prior to the event. Failing economies experience a sudden collapse, whereas robust economies experience a boom. There are sound economic reasons for these observations which will be addressed later in this presentation.

The financial effects of disaster are simply repercussions of the disaster on the stock and bond markets. There are many reasons why stock and bond prices move, but clearly psychology or the state of expectations plays an important role. Ignoring this important issue temporarily, the occurrence of a large disaster may or may not impact these markets. Clearly, the value of corporations directly impacted by the disaster will suffer, for they have lost productive capital. And, to the extent that the market value of the corporations affected reflects the valuation of income streams these companies are capable of generating, their stock prices should decline. In a rational world, these markets would decline by the value of the capital lost.

http://fermat.nap.edu/openbook/0309046394/html/148.html

 

[andyandy]

but also with some focus upon a Tokyo quake.....

A report prepared by Japan's Tokai Bank attempted to estimate quantitatively the economic ripple effects of a major earthquake in the Tokyo area on the rest of the world. Unfortunately, the estimates were derived from highly questionable assumptions. For example, it assumed that the earthquake in Japan would raise the U.S. Treasury bill rate by 5 percent. Given that Japan's total lending to the United States is only a trivial portion of the U.S. capital market, it is implausible for the real interest rate to rise by such a great magnitude. Since the world capital market is highly integrated, an appropriate comparison is the total reduction in lending by Japan due to the earthquake against the size of the world capital market. From this perspective, the effect on the interest rate in the United States must be quite small.

Now, talking about the Tokai study, it makes several unrealistic and wrong assumptions. For instance, it assumes that the impact would hurt the United States. That would be opposite to my prediction. If Tokyo were wiped out, the U.S. producers are in good shape; we are going to supply stuff to the world market because they are not coming from Japan. We are also going to supply goods to Japan because they need them for reconstruction.

My specialty is international trade, which is concerned about interdependence all the time. The Tokai study was an attempt to come up with quantitative estimates, but I think it failed because it made very unrealistic and wrong assumptions.

MS. STEWART: I do not think any of us would disagree that reconstruction after a catastrophe, be it an earthquake or a war, would be stimulating to the economies that would help in the reconstruction, just as we benefitted after World War II. This forum focuses on what to do to relieve the damage that is going to occur in the devastated area, rather than who is going to benefit from someone else's loss. I do not think there is any disagreement as to the stimulative effect of reconstruction.

QUESTION: Is there an analogous case that may lead to some testing of your models? For example, the reunification of East and West Germany may have an equivalent effect of a great earthquake. They have to rebuild the infrastructure, and I understand that estimates are something like $60 billion a year for the next 5 years, which is equivalent to $300 billion.

DR. CHENG: I think that is a very good point, and I would like to relate that to what Professor Hal Cochrane presented in his summary. There are many big events, and earthquakes are by no means the largest events in terms
of economic losses.

http://fermat.nap.edu/openbook/0309046394/html/154.html

 

[andyandy]

Indeed, the report even argues that a major tokyo earthquake could be positive for the global economy....

However, the Coming Great Tokyo Earthquake provided a number of interesting possibilities for discussing the previously mentioned shortcomings. The following scenario will stimulate discussion as to whether the Richter 8.2 San Andreas earthquake is still the truly catastrophic event for which plans must be made.

A recurrence of a 1906-like event in the Bay Area might cost $50 to $60 billion. Would this be large enough to create serious macroeconomic effects? Maybe not. What about a Richter 8.2 in downtown Tokyo? The cost of such an event has been estimated by Japanese economists to be $600 billion. What would be the implications for the Japanese and the U.S. economies? There can conceivably be two scenarios, one fairly gloomy and one which produces a brighter conclusion. It is not known which is more likely to occur, but the more positive scenario is intriguing.

The Great Tokyo Earthquake will strengthen both countries. First, the Japanese economists have overstated the magnitude of the event. They have probably included land values in their estimates and other impediments which have driven up the cost of Tokyo real estate. Land will not be destroyed, only structures and infrastructure. The event will be costly, but as pointed out above, the Japanese can muster enough savings to rebuild Tokyo without selling Treasury bills. The interest-rate differential will be attractive enough to induce them to hold onto these assets. Even if they are sold, the interestrate effects are likely to be smaller than the 5 percent increase some have forecast.

In short, the disaster might serve to rectify the trade imbalances which have dominated public concern for the past decade.

Some may question whether this latter scenario is overly optimistic. In considering recent events such as the unification of Germany, the New York and Tokyo stock market crashes, and the savings and loan crisis, it can be concluded that the U.S. economy is more resilient than many observers would believe

http://newton.nap.edu/books/0309046394/html/109.html

note.
i've got a feeling this is going to be a really unpopular thread....oh well, too late now

 

[andyandy]

this is not so positive - predicting the loss of over 40% of Japan's GDP...

A 1995 report on the estimated damage of a major Kanto earthquake by Oyo RMS consultancy predicts an event 10 to 16 times more damaging than the 1994 Kobe earthquake, itself responsible for 6,398 casualties and JY10 trillion of damage. It is a crisis which beggars belief. Less houses being constructed out of wood these days, the damage is predicted to be far less than in 1923. However, fires still remain a threat. Much of Tokyo's old reclaimed land remains vulnerable to liquification (where the shaking ground causes the soil to sink and the water content to rise to the top, as happens when one gently pats damp sand on the beach). Some of Tokyo's major industrial plants containing hazardous materials are constructed on just such land.

The predicted figures are mind-boggling: Up to JY330 trillion of economic damage with the loss of between 44% and 70% of Japan's GDP. The consequences that would have for the global economy are equally as worrying. On a human level, Oyo RMS estimates 80,000 to 100,000 serious injuries and 30,000 to 60,000 casualties. It is a scenario which almost makes you want to pack your bags and head home straight away. But for most Tokyoites that is not an option. The danger of an earthquake is a reality we all have to live with.

http://metropolis.co.jp/tokyofeaturestoriesarchive299/286/tokyofeaturestoriesinc.htm

nor this....

The economic cost of the next major (magnitude 8) earthquake is forecast to reach a staggering US$4.3 trillion (Insurance Information Institute, 2004) - up to 43 times more than the 1995 Kobe earthquake - at 100 billion US$, the most expensive natural catastrophe to date. Even a smaller (magnitude ~7) event could cause losses in excess of US$1 trillion.

There is considerable concern that the Japanese government and corporations will have to disinvest on a massive and unprecedented scale in order to rebuild and retool. This, some financial analysts feel, will bring chaos to the global economy.

It may not be unreasonable to envisage a repeat of the 1929 Wall street crash, which bankrupted more than 100,000 businesses in the US alone and fed a huge rise in unemployment, poverty and social unrest. Given such a situation, the UK economy and industry would also succumb.

http://www.channel4.com/news/special-reports/special-reports-storypage.jsp?id=1410

 

[The Atheist]

i've got a feeling this is going to be a really unpopular thread....oh well, too late now

It'll be a lot more unpopular now - I think it's highly interesting!

I guess the thing is that there are always going to be two sides - the cost of the event and the amount of money spent in re-establishing the destroyed buildings and infrastructure.

One thing which does bother me about seismologists and vulcanologists is that it seems that half of the world's faults and volcanoes are overdue to erupt based on 70/100/1000 year patterns. Yet, they can never tell us beforehand when Mt St Helens or Pinatubo is going to erupt, or when the tsunami was going to be. Much like climate change, these are new sciences and there have only been any kind of accurate measurements enabled for a century or so. We;ve been told an earthquake is overdue for Wellington for years, but haven't seen it yet. We keep hoping that it will at least hit while Parliament's sitting - Guy Fawkes, eat your heart out! Auckland, on the other hand, is apparently 200 years overdue for a major eruption.

At least you'll be fine, you don't live on the edge of a Tectonic plate.

Fascinating topic, especially for those of us on the Pacific Rim.