Attacks leave U.S. unsure of economic future

By Kelly Rayburn
Daily Bruin Senior Staff

The day after terrorist attacks destroyed the World Trade
Center, the only thing that most economists are certain of is
uncertainty.

Since the destruction of the World Trade Center, the United
States stock markets have shut down and won’t reopen before
Friday, European and Asian stock markets have declined and
businesses across the nation have closed.

But the long-term economic effects of the attack are
unclear.

“There is a big interest in how this will affect the
economy, and no one really knows,” said Martin Schneider, a
professor of macroeconomics specializing in international
banking.

Declines in the stock markets in Europe and Japan may indicate
similar declines in the United States’ stock market, he
said.

Tom Leiser, a senior economist at The Anderson School at UCLA,
said before today’s economic forecast that though “the
human loss is catastrophic, the economic impact is harder to
assess.”

But the persistent problem of a growing trade deficit is more a
threat to the United States’ economy than the collapse of the
World Trade Center, Anderson School senior economist Christopher
Thornberg said during the forecast.

Thornberg equated the recent tragedy to a natural disaster,
saying the worth of the World Trade Center itself, combined with
the loss of human capital, are comparable to the economic loss
endured after natural disasters like 1992’s Hurricane Andrew,
which led to $35 billion in damages.

Using graphs showing that the economy recovered swiftly from
three natural disasters ““ Hurricane Andrew, the 1994
Northridge Earthquake and Hurricane Floyd ““ Thornberg said:
“The process of society rebuilding itself is really a form of
economic stimulus.”

Thornberg also addressed the possibility of war.

He showed graphs which illustrated that the national economic
growth was not negative during the first economic quarter of the
Korean, Vietnam or Persian Gulf Wars.

After Thornberg spoke on the economic impact of the World Trade
Center destruction, Anderson School forecast director Edward Leamer
presented his forecast for the national economy.

Leamer was not worried the attacks would send the economy into
recession; he said the economy is already in recession today.

“It’s an unhealthy economy,” Leamer said.
“If you don’t like the word “˜recession,’
call it whatever you want. But we’re not in a well-behaving
economy.”

Three months ago, the school predicted an 80-percent chance of
recession. Leamer clearly stated his belief that the nation is
indeed in a recession now.

He said the real threat of the World Trade Center’s
destruction to the nation’s economy is the possibility that
the event may discourage foreign investors from investing their
money in the U.S.

Leiser agreed.

“It was the intangible perception that the dollar was the
safest place to park your money. There are fewer guarantees going
forward that, that will stay the case,” Leiser said.

Leamer cited graphs showing sharply dropping rates of
utilization of capital and labor and sharply rising rates of
unemployment in the last year.

Historically, similar periods of the sharp drops in rates of
utilization and high upswings in unemployment have led to
recession, Leamer said.

With reports from Robert Salonga, Daily Bruin Staff, and wire
services.