April 30, 2012

Occupation economics

Ume-chan Sensei, the current NHK Asadora, starts with the end of WWII, the arrival of MacArthur (swapping one shogun for another) in 1945, and the American Occupation of Japan.

With the economy wrecked and millions of soldiers and civilians being repatriated, MacArthur's first job was to import large amounts of food to keep starvation at bay during the winter of 1945/6, for which he deserves great credit.

But the food was distributed using rationing cards. Futile attempts to squash a parallel system of black markets slowed the creation of above-board distribution networks, and just as did Prohibition, lent great legitimacy to the yakuza.

One thing feudal rulers, utopian socialist and communists have in common is their contempt for merchants and traders, who make and do "nothing" but shuffle goods from one place to another. This contempt often becomes a self-fulfilling prophesy.

Alas, a world without merchants and traders is a poor and inefficient one indeed.

In one episode, Umeko's enterprising uncle flashes a big wad of cash and sums up the law of comparative advantage in a single sentence: "Stuff is worth more in some places than it is in others."

Umeko's father is a doctor (with a low opinion of his mercantilist brother), which would have placed them in the upper middle class. But by the end of the war, they've been reduced to a state of poverty only slightly less grinding than their neighbors.

They had more "stuff," such as kimono, but no way to trade it for stuff they could eat. In one episode, Umeko and her brother travel out to the country to find farmers to barter with. Unfortunately, the farmers have no use for their useless stuff either.

A farmer's wife rolls her eyes and says with jerk of her chin at a shed stuffed with clothing, "I already got more kimono than I'll ever need."

The black markets that blossomed around Tokyo was 1945's version of eBay, putting individual buyers and sellers together. What they really lacked was that other miracle of capitalism, a supply chain (not to mention a sound currency).

MacArthur would have done better to observe the black markets instead of prohibiting them, using that "natural" pricing mechanism to measure "real" supply and demand, and then enhancing distribution with the army's trucks and gasoline.

It's the same concept as waiting a couple of months before installing the sidewalks around a quad and seeing where the grass wears down (or waiting for winter and taking pictures).

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