IP: NYTimes.com Article: After the Horror by By PAUL KRUGMAN

[David Farber <dave () farber net>]

After the Horror

By PAUL KRUGMAN



It seems almost in bad taste to talk about dollars and cents after
an act of mass murder. Nonetheless, we must ask about the economic
aftershocks from Tuesday's horror.

  These aftershocks need not be major. Ghastly as it may seem to say
this, the terror attack — like the original day of infamy, which
brought an end to the Great Depression — could even do some
economic good. But there are already ominous indications that some
will see this tragedy not as an occasion for true national unity,
but as an opportunity for political profiteering.

  About the direct economic impact: The nation's productive base has
not been seriously damaged. Our economy is so huge that the scenes
of destruction, awesome as they are, are only a pinprick. The World
Trade Center contained 12 million square feet of office space;
that's out of 375 million square feet in Manhattan alone, and 3.5
billion in the United States as a whole. Nobody has a dollar figure
for the damage yet, but I would be surprised if the loss is more
than 0.1 percent of U.S. wealth — comparable to the material
effects of a major earthquake or hurricane.

  The wild card here is confidence. But the confidence that matters
in this case has little to do with general peace of mind. If people
rush out to buy bottled water and canned goods, that will actually
boost the economy. For a few weeks horrified Americans may be in no
mood to buy anything but necessities. But once the shock has passed
it's hard to believe that consumer spending will be much affected.

  Will investors flee stocks and corporate bonds for safer assets?
Such a reaction wouldn't make much sense — after all, terrorists
are not going to blow up the S.&P. 500. True, markets do sometimes
react irrationally, and some foreign markets plunged after the
attack. Since then, however, they have stabilized. On the whole
it's just as well that our own markets have stayed closed for a few
days, giving investors time to calm down; the administration was
wrong to put pressure on stock markets to reopen right away. By the
time the markets do reopen, the worst panic will probably be behind
us.

  So the direct economic impact of the attacks will probably not be
that bad. And there will, potentially, be two favorable effects.

  First, the driving force behind the economic slowdown has been a
plunge in business investment. Now, all of a sudden, we need some
new office buildings. As I've already indicated, the destruction
isn't big compared with the economy, but rebuilding will generate
at least some increase in business spending.

  Second, the attack opens the door to some sensible
recession-fighting measures. For the last few weeks there has been
a heated debate among liberals over whether to advocate the classic
Keynesian response to economic slowdown, a temporary burst of
public spending. There were plausible economic arguments in favor
of such a move, but it was questionable whether Congress could
agree on how to spend the money in time to be of any use — and
there was also the certainty that conservatives would refuse to
accept any such move unless it were tied to another round of
irresponsible long- term tax cuts. Now it seems that we will indeed
get a quick burst of public spending, however tragic the reasons.

  Now for the bad news. After the attacks, I found myself wondering
whether some politicians would try to exploit the horror to push
their usual partisan agendas. Then I chided myself for such an
uncharitable thought. But it seems you can't be too cynical; sure
enough, the push is already on to sell tax breaks for corporations
and a cut in the capital gains tax as a response to terrorism.

  One hopes that the White House will distance itself from this
disgraceful opportunism, that it will deliver the bipartisanship it
originally promised. But initial indications are not good: the
administration developed its request for emergency funding in
consultation with Congressional Republicans — full stop. A
Democratic contact says that his party received "no consultation,
no collaboration, virtually no information."

  I didn't want to mention this, but now is the time to draw the
line. This tragedy will only be magnified if it is exploited for
political gain. Politicians who wrap themselves in the flag while
relentlessly pursuing their usual partisan agenda are not true
patriots, and history will not forgive them.

http://www.nytimes.com/2001/09/14/opinion/14KRUG.html?ex=1001461528&ei=1&en=b1345c307c4c9c46

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