Dr. Parker Rossman
3 Lemmon Drive
Columbia MO 65201-5413
573-443-3256
FAX: 314-876-5812 (emergency)
grossman@mail.coin.missouri.edu
jrossman@mail.coin.missouri.edu
grossman@bigcat.missouri.edu
http://www.trib.net/~prossman
http://trib.net/~prossman/
Dear Parker:
(1) Many thanks for your msg
(ANNEX I) in response to my previous listserve
distribution
on Class on Peace Gaming at Univ. of Hawaii" dated on
April
11, 2000, which can be found at;
<http://www.kagawa-jc.ac.jp/~steve/global-univ-2000.html>.
(2) ANNEX II is the cover
sheet of our hand-out at our 1986 Global Lecture
Hall (GLH)"
videoconferencing.
(3) Attachment II is a part of ANNEX II.
Pls note that this was signed by you and Campano.
(4) ANNEX III is the scenario
Campano gave to Onishi for his computer
simulation.
(5) ANNEX IV is Onishi's report
appeared in a Japanese newspaper on August
6, 1986.
(6) Previously, you asserted
that the following para was given by Campano
for our
peace gaming during the 1986 GLH;
The Japanese navy would be on its way to the mid-Pacific to stop
by force an American company that was mining on the sea floor.
The American navy was coming to stop the Japanese navy.
Negotiators online would need to resolve the crisis before the
navies confronted each another."
As you see in Attachment II and ANNEX III and IV, the scenario we
USED did not have such case in contrast to your assertion.
(7) Since it is a matter of
integrity and credibility, I request again that
you remove
the above para from the Chapter 7 of your forthcoming book.
As you see in Attachment II, Campano's title was International
Economist," instead of his affiliation with the United Nations,
since he requested me. This was because he did not want that
even his professional scenario was to be construed as to have
been endorsed by his United Nations.
(8) I admire your excellent
talent of FICTION writing, but simulation is a
scientific
and academic profession which demands accuracy.
Thanks in advance.
Best, Tak
****************************************
ANNEX I
From: gu-l@friends-partners.org
Date: Wed, 12 Apr 2000 09:22:07
-0400
To: grossman@coin.org
Cc: utsumi@friends-partners.org
Subject: Error Condition Re: Re:
Class on Peace Gaming at Univ. of Hawaii
========================================
<<April 14, 2000>> Removed here by T. Utsumi,
========================================
I will in time make the changes
you recommend for the peace gaming
chapter. Certainly if I am going
to mention Compano's scenario that was
NOT used, I should clarify what
actually was used as you propose. Peace
Parker Rossman
grossman@coin.org
3 Lemmon Drive
author, EMERGING WORLDWIDE ELECTRONIC
Columbia MO 65201
UNIVERSITY (Praeger, 1993)Draft of sequel volume
RESEARCH ON CRISES is at address below:
http://www.trib.net/~prossman
****************************************
ANNEX II
HAND-OUT MATERIAL,
(For Participants)
Sessions: Tools for Managing Complexity
at
The Conference of The World Future Society
Main Theme
FUTURE FOCUS
(The Next Fifteen Years)
(Crisis Management and Conflict Resolution)
To be held at
New York Penta Hotel
New York,. New York
July 14 to 17, 1986
(Projected Attendance: 3,000)
July 8, 1986
Parker Rossman, Ph.D.
Former Dean
Ecumenical Continuing Education Center
Yale University
P.O. Box 382
Niantic, CT 06357-0382
Phone: 203-739-5195
Takeshi Utsumi, Ph.D.
President
Global Information Services (GIS), Inc.
43-23 Colden Street
Flushing, NY 11355-3998
Phone: 718-939-0928
****************************************
Attachment II
Proposed Scenarios
July 1, 1986
Prepared
by
Fred Campano
International Economist
New York, NY
Parker Rossman, Ph.D.
Former Dean
Ecumenical Continuing Education Center
Yale University
P.O. Box 382
Niantic, CT 06357-0382
Phone: 203-739-5195
****************************************
HAND - OUT 3
FUGI Model and Scenario Summarized
Rules of Gaming Simulation:
Tonight--and
also Wednesday and Thursday evening--we are playing a
game. All the audience and panelists
must play by the same rules in order to
demonstrate a "global tool" f or
managing complexity and to see how it to try
out, via simulation, peaceful ways
to solve international disputes. We will be
playing a game to test value of
using a model for this purpose, as pretending
there is a serious international
crisis as defined in the Campano scenario. We
will stick to what he defines.
Rules and procedures are as follows;
First rule:
we are playing with the FUGI Model as an example, not
testing
its accuracy. That will be done by economists in many countries
as it
is enlarged into an increasingly comprehensive global tool.
To play game the audience must assume that they are decision
makers, that they have participated with Onishi in designing the
model, and that the data and assumptions in the model have all be
agreed to. In other words, we are not going to critique the
details and adequacy of the FUGI model, but rather the value of
using such a model to aid in reaching informed decisions, i.e.,
to see how it might help in "computer assisted negotiation." The
"what-if" game to use the FUGI model here is an example of a
"global scale tool for managing complexity."
Second
rule: the audience's active participation, in Tokyo, Vancouver
and New
York is actively solicited, but will be by written questions
sent to
the panel for communication via computer network. People
elsewhere
will be participating via the EIES computer network.
Third rule:
we are playing with a scenario prepared by an international
economist,
Fred Campano, and will play the game as if everything it
proposes
is true.
Fourth,
this also means that the discussion will, because of shortage
of time,
be limited to the issue and central question selected in
advance.
The FUGI Model:
Onishi's
FUGI model has economic and resource energy forecasting
submodels of over 125 individual
countries. It has been used, for example, by
economists of India, New Zealand,
Australia and the U.S.A--with the HUB
computer conferencing system of
the Institute For the Future in Menlo Park,
CA, over global VANs when the East-West
Center in Honolulu conducted an
international economic affair gaming
simulation. At that time, the FUGI model
was processed by a central mainframe
computer.
The model
has now been extended and scientists hope that it can be
interconnected with increasingly
comprehensive national models in many
countries.
The session
on "computer assisted negotiation" reports the progress
that is possible when negotiators
can work with a commonly agreed upon data
base of factual information.
I. SCENARIO ON INTERNATIONAL INTEREST RATES:
Extremely
high U.S. Government budget deficits in the 1980's have
increased the need for the government
to borrow capital. Unlike the private
sector, when the government needs
money it borrows without much regard to the
interest rate. Now while it is
true that nominal interest rates have come down
dramatically in recent months,
the real interest rate (the borrowing rate
minus the rate of inflation) is
still quite high by historical standards (see
Table 1).
TABLE 1
United States Government Finance and Real Interest Rates
Expenditure Deficit
Real
& or
Lending Inflation Interest
Year Revenue Lending-Repay
Surplus Debt Rate
Rate Rate
--------- Billions of Dollars ------------ -------- Per Cent --------
1955 67.84
70.54 -2.70
223.9 3.2 2.2
1.0
1960 92.47
92.22 0.25
234.9 4.8 1.4
3.4
1965 116.83 118.43
-1.60 257.6 5.4
1.9 3.5
1970 190.49 201.87
-11.38 291.2 7.9
5.5 2.4
1975 280.70 356.10
-75.40 437.3 7.9
7.0 0.9
1979 480.54 508.45
-27.91 658.0 12.7
13.3 -0.6
1980 533.04 601.76
-68.72 737.7 15.3
12.4 2.9
1981 622.79 695.41
-72.62 825.4 18.9
8.9 10.0
1982 608.82 739.54
-130.72 987.7 14.9
3.9 11.0
1983 612.92 803.33
-190.41 1174.5 10.8
3.8 7.0
1984 683.20 867.66
-184.46 1373.4 12.0
2.4 9.6
1985 567.84 698.23
-130.46 1507.9 9.5
3.5 6.0
Source: INTERNATIONAL FINANCIAL
STATISTICS, International Monetary Fund,
February, (1986)
These high
real interest rates discourage the private sector from
borrowing and hence tend to limit
the prospects for economic growth. However,
the higher interest rates that
are found in the U.S. tend to attract money
from countries such as Japan, which
have lower interest rates. The inward flow
of money to the United States from
foreign countries exerts an upward pressure
on the dollar. A strong dollar
makes imported goods less expensive for
Americans and U.S. exports more
expensive for foreigners. The result is a
large negative balance of payments
for the U.S. as imports flow in and exports
show no appreciable increase (Table
2).
TABLE 2
Merchandise
Exports, Imports, and Trade Balance of the U.S.
Levels and as a percent of GDP
(Billions of U.S. Dollars)
-----------
Levels ------------------ ----- Percent of GDP ----
Trade
Trade
Year Exports Imports
Balance GDP Debt
Deficit Balance
1955 14.26
11.52 2.74 397.3
56.4 -0.7 +0.7
1960 19.65
14.76 4.89 502.9
46.7 ---
--
1965 24.46
21.51 4.95 685.2
37.6 -0.2 +0.7
1970 42.45
39.86 2.59 985.4
29.6 -1.2 +0.3
1975 107.09 98.18
8.91 1531.9 28.5
-4.9 +5.8
1979 184.47 212.03
-27.56 2375.2 27.7
-1.2 -1.2
1980 224.27 249.77
-25.50 2586.4 28.5
-2.7 -1.0
1981 237.10 265.08
-27.98 2907.5 28.4
-2.5 -1.0
1982 211.20 247.67
-36.47 3021.3 32.7
-4.3 -1.2
1983 200.75 262.77
-62.02 3256.5 36.1
-5.8 -1.9
1984 220.32 329.59
-108.27 3619.2 37.9
-5.1 -3.0
1985 160.77 247.28
-86.51 3877.3 38.9
-3.4 -2.2
I-III
Source: INTERNATIONAL FINANCIAL
STATISTICS, International Monetary Fund,
February, (1986)
Domestically,
cheaper imports help to keep the inflation down, however,
they also compete with domestic
producers who might find it difficult to meet
the competition in the short run.
In the longer run, they could be more
competitive if they could borrow
money, to modernize their production, but
that is difficult if the cost of
borrowing is high. Producers in export
oriented industries, such as some
of the farmers in the midwest, are also
faced with stiff competition as
the cost of their produce rises in world
markets. Fears of permanently lost
markets, business failures and the
resulting loss of jobs have rallied
"protectionist" forces and price support
groups for the domestic industries
most effected by a strong dollar.
In an effort
to curb the protectionist tide, an agreement was set last
September between the U.S. and
the finance ministers of major U.S. trading
partners, which committed these
countries to intervene together in foreign
exchange markets whenever the group
felt that the dollar was growing too
strong. In a country like Japan,
which sends about 30% of its exports to the
U.S. and which has a large trade
surplus with the U.S., relatively high
interest rates in the U.S. attract
back the excess dollars that are gained
from the trade surplus. Thus they
help finance the large U.S. Government
deficit. Because these monies could
be used for domestic investment instead of
helping finance the U.S. deficit,
the higher interest rates in the U.S. are
often blamed for the slower economic
recovery in the rest of the world.
A tremendous
increase in borrowing by the developing countries occurred
during the 1970s. This is mainly
explained by the continual need of developing
countries for more capital in order
to expand their economies and the
conditions in the 1970s which made
that capital easy to borrow. After the oil
price increases in 1973-74, many
of the oil-producing countries could not
absorb all their oil revenue for
their own purposes. Hence, a good portion of
it ended up in international banks
where it was made available for lending. At
the same time the real interest
rate was very low, perhaps negative at time,
so it made "good sense" to occur
debt. This was the so-called inflation
mentality of the era.
After the
second oil shock, the increase in lending accelerated, and
developing country debt increased
by about 50% between 1979 and 1982. The debt
service ratio (interest and amortization
as a percent of exports) average
around 20%. With the world wide
recession setting in during this period, these
countries found the demand for
their exports far short of what they expected
and their prices began to drop
while the prices of the things they had to
import were still relatively high.
As a consequence they had to borrow in
order to service their debt, but
the banks now started becoming cautious and
were less willing to lend long-term.
Hence, the debt-ridden countries were
forced to borrow for shorter terms
at higher interest rates. This of course,
exasperated the debt accumulation
and the crisis set in.
If short-term
interest rates in the U.S. and other major OECD countries
go down by 2 to 3 percentage points
(1 for Japan and Switzerland) during the
1986-87, compared with the baseline
assumptions one would expect:
(a)
A weaker dollar which should help correct the trade balance of
the U.S.. This should also make imported goods in the U.S. more
expensive and this combined with a resurgence of borrowings by
the private sector would exert inflationary pressure (not
necessarily the high levels we saw in the 1970);
(b)
Economic growth stimulated in the OECD countries and Japan,
although with a weaker dollar, their exports will find American
exports more competitive and this may cause trade balances in
these countries to be pushed to the negative side;
(c)
The weaker dollar also implies more costly imported oil for the
U.S., contributing towards inflationary pressure, but at the same
time being some relief to the domestic oil industry in South West
U.S.;
(d)
Lower interest rates will make it easier for developing countries
to roll over their foreign debt and hopefully reduce their debt
burden;
(e)
Export oriented farmers in the U.S. will benefit from the weaker
dollar as their goods become more competitive on world markets;
(f)
The flow of capital out of Japan into the U.S. should slow down
and the Japanese will have more opportunity to expand domestic
programs.
II. CHANGES ON OIL PRICES AND THEIR EFFECT ON WORLD ECONOMY,
II-A.
Suppose
that the oil price decreases sharply to about $10/bl in 1987 and
stay at that level all the way
to the year 2000.
In this
scenario, some oil countries, such as Mexico, Ecuador, Nigeria,
etc., which have very serious dollar
payment problems and high debt, will get
difficulty and will not be able
to pay back their loans completely to some
large American banks. In this case,
the U. S. has to make some kind of policy
decisions how to handle such situation.
One of
the consequences of such situation would be that, in helping
those countries, the U.S. Government
would have to increase its money supply.
Foreign investors would lose their
confidence in American economy. It would
also be inflationary pressure on
the U.S. economy.
Meanwhile,
the inflationary pressure would have to be offset by increase
in the interest rate. This would
hence cloud the American economy because of
the increase in the interest rate
and deteriorate the world economy further.
Finally, because of weakening American
economy, even though we have high
interest rate, the foreign investors
would not invest in the U.S. security
than they do now when they have
more confidence in American economy.
The above
is a pessimistic scenario for indebted oil countries and the
U.S. banks and the U.S. economy
that depend upon these countries' pay back
their debt.
II-B.
Suppose
that the oil price rises gradually from about $16/bl in 1986 up
to about $30/bl in 1990, and stays
at that level all the way up to the year
2000.
Look at
the sensitivity of this scenario.
III. JAPANESE BEGIN TO IMPORT MORE.
Suppose
that Japanese will import more simply by having greater response
to increase in their income.
The income
elasticity in their import demand function is right now very
low, that is, even when Japanese
income goes up, they do not import very much
more. Consequently, their economic
health is very depended upon their export.
If their export falls off as they
have to with the U.S. recently, then it will
affect their entire economy.
One way
to deal with this would be that they would create greater
domestic demand so that they consume
what they produce and import. Namely,
Japanese would have to save less
and consume more, which probably could be
controlled through more importing.
****************************************
ANNEX III
SCENARIOS
I. Effects of oil price changes on the world economy.
I-A. The oil price decrease.
Suppose that;
(1)
the oil price decreases sharply to about $10/bl 1987 and stay at
that level all the way to the year 2000;
(2)
the U.S. would have to increase money supply at annual rate to
10%;
(3)
the U.S. dollar would be depreciated by 20% against the major
currencies compared with those of the baseline.
I-B. The oil price rise.
Suppose that;
the oil
price rises gradually from about $16/bl in 1986 up to about
$30/bl
in 1990, and stays at that level all the way up to the year 2000.
II. Japanese begin to import more.
Suppose that Japanese will make efforts;
(1)
to expand imports by eliminating gradually tariffs and non-tariff
barriers by 1990;
(2)
to introduce fiscal policies to stimulate domestic demand by
reduction of both personal income tax (2 trillion yen) and
corporate income tax (1 trillion yen);
(3)
to decrease the official discount rate by 0.5 percentage point,
interest rates on housing loan and on consumers credit by 2
percentage points respectively beginning in 1987.
III. The U.S. - Japan cooperation
Suppose
that the U.S. and Japan will cooperate and put into practice the
following
policies beginning in 1987;
(1)
in order to attain 'its balanced budget target, the U.S. cuts back
government expenditure through 1987 - 1991;
(2)
the U.S. and Japan will take an initiative to cut official
discount rates (2 percentage points by the U.S. and 0.5 percentage
point by Japan, respectively) and the rest of the major OECD
countries will follow. Japan cuts also interest rates on housing
loan and consumers credit by 2 percentage points;
(3)
both the U.S. and Japan will increase expenditures on high-
technology R&D by 0.5% of GDP for stimulating private investment;
(4)
Japan will introduce fiscal policies stimulating domestic demand
by reduction of both personal income tax (2 trillion yen) and
corporate income tax (1 trillion yen) together with an expansion
of the government investment expenditures by 1 trillion yen;
(5)
Japan will make efforts to expand imports by eliminating gradually
tariffs and non-tariff barriers by 1990;
(6)
Japan will expand ODA to developing countries in order to attain
the goal of 0.7% of GDP by 1995;
(7)
Japan will expand private direct foreign investment by an
additional amount equal to 0.5% of GDP. In particular, Japanese
private direct investment is directed to expand its imports from
the rest of the world.
****************************************
ANNEX IV
Excerpt from
<http://www.friends-
partners.org/GLOSAS/Bookwriting/PART_I/Chapter_II/Insertions/Nikkei/8-8-
86/English_translation/Onishi_report.html>
"U.S. AND JAPAN SHOULD COOPERATE RATHER THAN COMPETE"
World Economic Crisis Simulation
Maintain Economic Growth
Avoid Protectionism by All Means
by
Professor Akira Onishi
Director
Institute of Applied Economic Research
Soka University
1-236, Tangicho
Hachioji-shi, Tokyo 192
JAPAN
Appeared in Nihon Keizai Shimbun
(August 8, 1986)
Translated
by
Takeshi Utsumi, Ph.D.
President
Global Information Services, Inc.
43-23 Colden Street
Flushing, NY 11355-3998
718-939-0928
(August 15, 1986)
Edited
by
Fred Campano
International Economist
United Nations
------------------------------------------------------------------------
ABSTRACT
A sharp decline in the price of
crude oil and a sharp depreciation of the
U.S. dollar are the basis of the
two crisis scenarios for the present world
economy. Using the FUGI world model
to simulate to the year 2000, the
following results were obtained:
1. A sharp decline in the
price of crude oil could cause a number of oil
producing
debtor countries to default. If the U.S. pursues expansionary
policies
which circumvent financial uncertainty, the world economy will
plunge
into a recession which will be characterized by an inflation and
a radical
rise in interest rates.
2. Continued large U.S.
cumulative current account deficits will lead to a
loss of
confidence in the U.S. dollar. A collapse of the dollar would
have an
impact way beyond anyone's guess and the economy of the U.S. as
well as
the rest of the world will rapidly decelerated.
3. If the U.S. enacts comprehensive
trade (protection) legislation in
order
to prevent a sharp depreciation of the U.S. dollar, the U.S.
current
account balance would substantially improve, but with the
burden
of the sacrifice by many other countries, including Japan, and
subsequently
world trade will significantly decline.
In order to avoid this protection-oriented
trade war, cooperation among the
U.S., Japan and Western Europe
is absolutely necessary. The U.S. must adopt
a tight fiscal policy and Japan
must expand domestic demand. International
cooperation on further reduction
of interest rates is also vital.
------------------------------------------------------------------------
Apprehensions of A Sharp Decline
in the Price
if Crude Oil and in the Exchange Rate of the U.S. Dollar
>From July 16 to 18, the World Future
Society presented a U.S./Japan
teleconference connecting New York
and Tokyo. The FUGI world economic crises
prediction simulation model of
Soka University was used for the discussions.
In this article, the world model
was used to project the long-term response
of the world economy to sharp declines
in the price of oil and the exchange
rate of the dollar vis-a-vis the
yen. (A scenario designed by Professor
Lester Thurow of M.I.T. and Mr.
Fred Campano, an economist at the United
Nations.)
The baseline scenario, i.e., what
could be expected if the current trends in
the world economy were to continue,
indicted a balance of payments crisis
for the U.S., however, other scenarios
indicated that this could be averted
if the proper policy mix was undertaken
by the U.S. and Japan. (The
percentages used in the scenario
summaries below indicate the percentage
point difference between the baseline
and the scenario results.)
A Sharp Decline in Crude Oil Prices
If the recent rise of crude oil
prices resulting from the latest agreements
on oil production by the OPEC countries
is not sustained, and the price of
oil remains on an average of $10
per barrel until the year 1990, then
developing crude oil producing
countries, especially debtor countries such
as Mexico, will experience a large
negative impact on their economic
development. The yearly growth
rate for the 1987-1990 period will be 1.9%
less then the baseline for Mexico,
and 0.8% less for the oil-producing
countries as a group. The cumulative
deficit of current account of the
former during this period will
mount to 30 billion dollars and that of the
latter to 370.7 billion dollars.
Many debtor countries, such as Mexico,
could default, and Middle Eastern
oil-producing countries would probably be
forced to liquidate their overseas
assets and hence start a chain reaction
of bankruptcies of a number of
American banks. If the U.S. Government tries
to increase its money supply to
cope with the financial crisis, the U.S.
dollar would encounter a sharp
decline in its value and inflationary
pressures will force the decline
of interest rates to halt. Under this
scenario, a 20% reduction in the
value of the dollar is assumed. This
results in the growth rate of the
U.S. economy to be less than the baseline
by 1.5% (yearly average) and Japan's
by 0.8%, and for the world economy as a
whole, a decrease of 1.0% from
the baseline.
On account of decline in the growth
rate, U.S. current account deficit
should be reduced by 22.6 billion
in 1990. However, in the case of Japan,
since the reduction of surplus
over the U.S. trade is offset by the gain in
the balance against the OPEC, the
overall surplus will remain. On the other
hand, the U.S. economy would experience
an economic recession due to a
depressed oil sector in the U.S.
Economy, since the U.S. itself is an
oil-producing nation. This in turn
would put recessionary pressures on the
Japanese economy.
A Sharp Decline of the U.S. Dollar
In this scenario we assume that
the U.S. current account deficit continues
into the future and that there
is a sharp decline of the U.S. dollar in 1987
due to a loss of confidence in
the dollar, to about 40% of the baseline
exchange rate against the yen,
that is, to about 100 yen to the dollar.
Such a sharp depreciation of the
dollar would have an impact on the world
economy which is beyond what anyone
could guess. From the FUGI model we
estimate that for the period 1987
1990, the average growth rate in the U.S.
would be 4.8% less than the baseline
growth rate, in Canada 5.7% less, in
Japan 2.0% less and in the Pan
Pacific periphery countries as a whole, 3.8%
less.
In the world economy as a whole,
excluding the Centrally Planned Economies
which should be minimally affected,
the average growth rate would be 3.1%
less than the baseline. The developing
countries would have a decrease of
only 1.0%, but the newly industrialized
countries (NICS) in Asia would
experience a substantial decline
of 2.4% less than the baseline.
After an initial increase to $221.1
billion in 1987 from $134.3 billion in
1986, the U.S. current account
deficit should begin to decrease in 1988 down
to 90.2 billion in 1990. The Japanese
current account surplus should also
decrease from 79.6 billion in 1986
to 45.6 billion in 1990. Compared with
the baseline figures, the U.S.
deficit would be 73.4 billion less in 1990
and the Japanese surplus would
be reduced by 42.5 billion. On the average
for the 1987-1990 period, U.S.
consumer prices would increase by 5% and
interest rates by 3.2%. This and
the reduction in world trade should impact
severely upon debtor developing
countries and the sharp decline of the U.S.
dollar may trigger a world economic
depression.
Enactment of U.S. Trade Legislation
If the U.S. enacts trade legislation
designed to limit imports as a means of
avoiding a crisis stemming from
a dollar depreciation, a number of (dollar)
surplus countries against the U.S.
such as Japan will cooperate with each
other and retaliate against the
U.S.
In such a case, world trade would
be $291.4 billion in nominal terms (76.8
billion in constant 1975 dollars)
less than the baseline level for 1990. For
the 1987-1990 period, the growth
rate in the U.S. would increase on the
average of 1.1% per year, while
Japan's would decrease by 1.4%. The Asian
NICS would also decrease by 1.6%,
with Taiwan experiencing a 2.5% decrease
and Hong Kong 3.0%. The EC as a
whole would remain relatively unaffected
with a marginal decrease of 0.12%
(Federal Republic of Germany with a
decrease of 0.38%).
The developed marked economy countries
as a whole would see a slight
increase of 0.19% because of the
good U.S. economy, but the developing
countries as a group would see
a slight decrease of 0.16%. In general, the
impact on the Asian countries would
be large, but the impact on the Central
and Latin American countries as
well as the African countries would be
minimal. Albeit small, the Middle
Eastern and Centrally Planned Economies
would have a positive effect.
The U.S. current account deficit
would be $52.4 billion less than the
baseline in 1990 and Japan's current
account surplus would be $38.8 billion
less than the baseline estimate.
The improvement of the U.S. economy and the
decline of the Japanese economy
would accelerate the cheaper yen/higher
dollar parity, thereby reversing
the rate of increase of U.S. consumer
prices by 0.27% and eventually
stabilizes. Consumer prices in Japan,
however, would have an average
yearly increase of 0.94%.
A Scenario to Avoid Crisis
This scenario is designed to correct
the structural imbalance between
current accounts of the U.S. And
Japan and aims to avert a world economic
crisis through cooperative U.S./Japan
policies starting in 1987. The
assumptions are:
1. The Gramm-Rudman legislation
forces the U.S. to tighten its fiscal
spending
and bring its budget into balance by 1991.
2. The U.S. and Japan cooperate
in reducing the interest rate in the U.S.
by 2%
and in Japan by 0.5%. Other major OECD countries would follow
suit.
Japan would also lower the mortgage interest rate and consumer
credit
rates by 2%.
3. Private investment would
be stimulated in the U.S. and Japan through
research
and development expenditures amounting to 0.5% of GDP.
Moreover,
Japan would stimulate consumption by cutting personal income
taxes
by about 2 trillion yen and cutting corporate taxes 1 trillion
yen. Public
investment would also increase by 1 trillion yen. Japan
would
take steps to further open its markets by 1990 through a gradual
elimination
of tariff and non-tariff barriers. Japanese ODA (Official
Development
Assistance) of developing countries would achieve its goal
of 0.7%
of GDP by 1995. Japanese private overseas direct investment
would
also increase by an additional 0.5% of GDP.
An Escape from the Reverse Oil Shock
If the above U.S./Japan cooperative
scenario could be realized, world trade
would expand by 197.7 billion dollars
in 1990, and by 783.4 billion dollars
in the year 2000 (nominal dollars)
as compared with the baseline. The crude
oil price would rise $3/bbl above
the baseline in 1990, to $13/bbl more than
baseline in 2000, and subsequently
a "reverse oil shock" would be avoided.
For the period 1987-1990, the yearly
average growth rate of the Japanese
economy would be 3.2% more than
under the baseline scenario, and 1.9% more
during the 1990-2000 period, in
other words, the real growth rate would be
7.1% for the former period and
for the latter it would average 6.5%. The
world economy yearly average growth
rate would be 0.6% above the baseline,
while non-oil producing developing
countries 0.7% above, and the NICs 1%
above.
For the U.S., the average yearly
growth rate would be 0.9% above the
baseline in the 1987-1990 period
and 0.6% in the 1990-2000 period. However,
the U.S. current account deficit
would be 45.8 billion dollars less than the
baseline deficit in the year 1990
and 131 billion dollars less than the
baseline in 2000; furthermore,
the U.S. would avert a crisis resulting from
a sharp depreciation of the U.S.
dollar.
Moreover, because the U.S. is able
to balance its budget by 1991 it can ease
the debt servicing burden of debtor
developing countries by decreasing
interest rates and expanding world
trade.
The above simulation indicates that
a new era is approaching in which it is
absolutely necessary that the U.S.
and Japan cooperate rather than confront
one another.
**********************************************************************
* Takeshi Utsumi, Ph.D., P.E.,
Chairman, GLOSAS/USA
*
* (GLObal Systems Analysis and
Simulation Association in the U.S.A.) *
* Laureate of Lord Perry Award
for Excellence in Distance Education *
* Founder of CAADE
*
* (Consortium for Affordable and
Accessible Distance Education) *
* President Emeritus and V.P. for
Technology and Coordination of *
* Global University
System (GUS)
*
* 43-23 Colden Street, Flushing,
NY 11355-3998, U.S.A.
*
* Tel: 718-939-0928; Fax: 718-939-0656
(day time only--prefer email) *
* Email: utsumi@columbia.edu;
Tax Exempt ID: 11-2999676
*
* http://www.friends-partners.org/GLOSAS/
*
**********************************************************************
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