Experts disagree on economic impact of Sept. 11

Fallout from last year’s terrorist attacks was not
confined to Ground Zero ““ economic effects of terrorism were
felt nationwide.

Though not all economists agree on all specifics of the economic
impact from the events of Sept. 11, 2001, what is most clear is
that airlines were hit hard. Additionally, increased security
measures and a possible war against Iraq could slow economic
recovery.

At present, airlines are “miserable,” said John
Heimlich, an economist at the Air Transport Association.

“We’re still in a terrible fiscal crisis,” he
continued.

Though many airlines faced financial difficulties before the
attacks, after Sept. 11 demand for air travel decreased as fear of
future hijackings pervaded the country, heightened security
increased the hassle of air travel, and a slow economy convinced
potential passengers not to fly, Heimlich said.

National carriers’ stock prices took huge hits immediately
following the suicide hijackings, and values continued to drop over
the past year.

In dollar terms, Continental Airlines’ stock has taken the
biggest hit. Continental’s stocks opened Sept. 10, 2001 at
$39.75 per share. When markets reopened on Sept. 17, prices had
fallen to $19, and the decline continued over the year. At the
start of trading on Sept. 10, 2002, Continental’s shares were
worth $9.31 each.

The airlines’ financial crisis is much more than a
shareholders’ problem, as airlines have turned to layoffs to
cut costs. Last August, AMR Corp., which owns American Airlines,
announced that 7,000 employees would lose their jobs.

Additional layoffs can be expected, said Heimlich.

As bad as the attacks’ economic effects are for airlines,
they have not meant hard times for all economic sectors, said Tom
Lieser, a senior economist with the Anderson Forecast at UCLA.

As one backs away from the geographic locations of the attacks
and highly affected industries like transportation, the
attacks’ “effects become somewhat muted,” Lieser
said.

According to Lieser, last year’s recession was not caused
by the terrorist attacks but instead began when the high-tech
bubble burst.

“Sept. 11 has influenced the timing and magnitude of some
of the adjustments we’ve seen … but in large part this has
been a private sector recession that reflects an over-investment in
high-tech equipment,” Lieser said.

Peter Navarro, a professor of economics at UC Irvine, agrees the
current recession began before Sept. 11 but finds a different
source for economic troubles.

“(Alan Greenspan) triggered the recession, let’s be
clear about that,” said Navarro, citing the Federal
Reserve’s decision to hike interest rates in August 2001.

Unlike Lieser, Navarro believes the attacks affected the entire
economy.

“If 9/11 hadn’t come along we’d be cruising
right now, ” he said.

A third view is that of Anderson Forecast senior economist
Christopher Thornberg, whose report “How 9-11 Helped End the
Recession” argues that the attacks sped economic
recovery.

Deep cuts in interest rates, which led to an increase in
consumer purchases, combined with increased government spending
related to the war effort, combined with other factors to prevent a
vicious cycle, said Thornberg, who termed his findings a
“very uncomfortable conclusion.”

Economists are not bullish on the future ““ growth may be
slowed as increased security diverts resources from consumer goods,
if it is not prevented by a major war.

Though Lieser believes the economy “is growing in a
positive direction,” the amount of investment in security and
defense industries may slow expansion.

“It’s not ultimately as productive as if you spend
it on market driven goods,” Lieser said.

Spending related to the war on terrorism will not stop recovery,
but the effect can be compared to driving with the emergency brake
on, Navarro said.

However, as technology discovered by the space program
eventually found its way into products sold in Main Street stores,
innovations in security technology could possibly spill over into
consumer products as well.

“The trick always is to do R and D (research and
development) as a double-edged sword,” Navarro said.

Economists are less optimistic about a war against Saddam
Hussein.

Though the final results are “hard to say … it could be
costly,” Lieser said.

The 1991 Persian Gulf War caused a recession that led to
President Bush being voted out of office, and a second war on Iraq
could have the same results, said Navarro.

“It’s not a pretty picture, it’s not like
war’s good for the economy,” he said.

Airlines expect a war would further reduce already low levels of
demand while increasing costs by causing a hike in both oil prices
and insurance prices, Heimlich said.

As the nation waits to learn whether or not the war expands,
it’s clear Sept. 11 will continue to affect the world in ways
that go beyond the economy.

“It’s changed our lives in a lot of ways that are
still playing out,” Lieser said.

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