<<April 14, 2000>>

Dr. Parker Rossman
3 Lemmon Drive
Columbia MO 65201-5413
FAX: 314-876-5812 (emergency)

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;

(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

(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:
                            ANNEX II

                         HAND-OUT MATERIAL,
                         (For Participants)

               Sessions: Tools for Managing Complexity
             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.
            Global Information Services (GIS), Inc.
                      43-23 Colden Street
                    Flushing, NY 11355-3998
                      Phone: 718-939-0928
                         Attachment II

                       Proposed Scenarios

                          July 1, 1986


                          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

                           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

     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.


     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

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

     (d)  Lower interest rates will make it easier for developing countries
          to roll over their foreign debt and hopefully reduce their debt

     (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



     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.


     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

     Look at the sensitivity of this scenario.


     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.


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

     (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

                      World Economic Crisis Simulation

                          Maintain Economic Growth
                      Avoid Protectionism by All Means

                           Professor Akira Onishi
                   Institute of Applied Economic Research
                               Soka University
                               1-236, Tangicho
                           Hachioji-shi, Tokyo 192

                      Appeared in Nihon Keizai Shimbun
                              (August 8, 1986)

                            Takeshi Utsumi, Ph.D.
                      Global Information Services, Inc.
                             43-23 Colden Street
                           Flushing, NY 11355-3998
                              (August 15, 1986)

                                Fred Campano
                           International Economist
                               United Nations


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

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%

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%

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/                            *
Return to: Global University System Early 2000 Correspondence
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