U.S. economy can handle the shock of this tragedy

By Richard Startz
Special to The Times

Terrorists struck a physical blow Tuesday, but our economy is safe. The American economy will continue to be the greatest engine of strength and prosperity the world has ever known. It is the rock on which the nation will base its political and military response to its enemies.

Those who cry "dire economic effects" have lost sight of both economics and history. The terror has been a strike at our psyche, but it is a flea bite to our mighty economy.

We already know the extent of the short-run damage. The toll for buildings, for closed businesses, and for the irreplaceable human casualties runs to the tens of billions of dollars. The American economy produces $180 billion of goods and services each week. The direct cost of the attack amounts to several days' wages for each of us. America builds the equivalent of 100 World Trade Centers every year. The short-run effect on our economy is so small as to be beneath our notice.

What about recession? A loss of confidence is certainly a danger, but Americans rally around when threatened.

Only a significant increase in the price of oil would push us into a significant recession. The price of oil is largely controlled by a small group of oil-producing countries, the most influential being Saudi Arabia and Kuwait. Despite strong differences, the Saudis and Kuwaitis have been our good friends and close allies. Our soldiers and theirs shed blood together not long ago.

So long as OPEC, the Saudis in particular, keeps a steady hand on the price of oil, we are at no more risk of recession today than we were last week.

Are you old enough to remember what happens to the economy when America goes to war? In the aftermath of Pearl Harbor, The Seattle Times reminded us Tuesday, "The region girded for total war. Boeing began mass-producing bombers, Everett Pulp and Paper increased pro-duction, the Bellingham Iron Works outfitted minesweepers. Milk production soared."

We will rebuild buildings. If needed, we will build bombers. It would be better to make jobs building highways and schools. But war produces jobs, not recessions.

What of the concerns that foreign investment in the United States will dry up? A legitimate question, but the world invests in America because we have a strong economy and a stable financial system. So long as investors know that their money will be hard at work in the United States and that our borders remain open to trade in goods and money, they will not be deterred by fear of terrorist attack. America is the safe haven for the world's investors today, and will be tomorrow as well.

Our enemies do not understand that when our nation is under attack our soldiers, sailors and airmen are backed by the essentially unlimited resources of our workers and people. Whatever we need for better security at airports, for munitions for the military, for intelligence computers, to pay agents on the ground — all this our economy can supply with very little sacrifice of our ordinary business.

The sole long-run economic danger we face is surrendering, through fear, what has made our economy strong. On Tuesday, we rightly restricted internal movements and international trade without question and without complaint. Moving forward, we must fully restore our abilities to move and communicate with minimal restriction.

We must strengthen our internal security while retaining the civil liberties that support business and economic — as well as political — exchange. We must deal harshly with enemies abroad while strengthening relations with our trading partners around the world.

Political and economic freedoms go hand-in-hand in preserving economic strength. Just as the strength of our economy supports our freedom, so too does our freedom support the strength of our economy.

It is natural in a time of terror to react in fear on many fronts. We have a policy crisis. We have a military crisis. We do not have an economic crisis. Indeed, it is the strength of our economy supporting the strength of our wills that will give us the power to do what needs to be done.

Richard Startz is Castor Professor of Economics at the University of Washington.

Seattle Times, September 13, 2001