Paul Krugman points to Japan's apparent resurgence in GDP and asks: "There seems to be some kind of lesson here about macroeconomics, but I can’t quite put my finger on it …" My comment: The lesson here is that one needs to be careful when trying to understand natural disasters using flow-based identities like Y=C+I+G. The latter fails to account for large draw-downs in national wealth due to, say, tsunamis. Using a stock identity, and stock related data like national net worth, will be more helpful in this situation. For a proper accounting treatment of Japan's experience, Krugman should refer to the 722 page UN System of National Accounts Manual ( pdf ). Krugman wants to use the production accounts for his analysis, which are represented as flows. He should be using the wealth account, in particular new worth , which is a stock. The tsunami will have resulted in a large fall in Japan's net worth. This is elementary, so I don't know why a Nobel-prize winnin...