Duke experts: Attacks further slowed economy

Published in: The Herald-Sun
Page: A7
Date: Tuesday, October 09, 2001

By KIMBERLY SWEET kss@herald-sun.com; 419-6601

   Economic and finance experts at Duke say the Sept. 11 terrorist attacks on the United States simply punctuated the slump
of an already slowing U.S. economy.
   For the short-term, the fate of the economy lies in the hands of consumers, the professors told a group of 50 people at
a forum held at Duke's Fuqua School of Business Monday night.
   But in the long-term, the United States will have to re-evaluate its role as a player in the global economy to ensure
economic prosperity and safety, they said.
   Campbell R. Harvey, an internationally recognized expert in portfolio and risk management, said he predicted before the
Sept. 11 attacks that the United States would go into a mild recession in the remaining quarters of 2001.
   Now he predicts more negative growth rates into 2002.
   He said the United States lost $165 billion in income as a result of the attacks. The world economy - which is
intricately tied in with the U.S. economy - took a $250 billion hit.
   As the nation recoups from the attacks, it can expect to lose $300 billion in income in the next year, Harvey said.
   Douglas T. Breeden, dean of the Fuqua School of Business, said the United States is in good stead going into the
economic downturn, however.
   Home ownership is at record levels, which is good for stability. The Dow Jones and S&P 500 are just two percentage
points away from where they were before the attacks.
   The stock market is still relatively high. People who were well off three years ago, "are still well off," Breeden said.
Interest rates are low, which is good for borrowing. The government still has a surplus, which could serve as a safety net.
   But a number of factors could tip the scale in a negative direction. 
   Businesses could cut back on employees and still produce the goods the nation is demanding. That means the threat of
increased levels of unemployment looms.
   Consumers currently have high levels of debt. If interest rates go up, paying off that debt could be difficult, Breeden
said.
   Frederick Mayer, associate professor of public policy at Duke and an expert on economic globalization, said the
terrorists would be victorious if they stopped U.S. consumers from leading normal lives, which includes flying, taking
vacations and partaking in other activities that keep the nation's economy rolling.
   "The point of terrorism is terror," Mayer said. "The cost of fear is greater than the cost of the attacks themselves."
   But urging the nation to get back on planes will only help the country in the short term.
   The United States must also realize its role globally, Mayer said. 
   While the United States has benefited from an open system of trade, a large part of the world has not gotten a piece of
the pie. Nearly 1.5 billion people are classified as poor by the United Nation's definition, Mayer said.
   The United States has been steadily disengaging itself from countries that contain those poor people, he said. The
amount of developmental assistance provided poor countries today is less than half of what it was in the 1960s.
   As the disparity between rich and poor increases, the United States will see more backlashes from poor countries, Mayer
said.
   "I don't think we can have a world where some benefit while others are on the outside looking in," he said, referring to
countries like Afghanistan, where the per capita income is just over $200 a year.
   "There is no fence high enough to separate us from those countries," he said.
   Extremist ideology flourishes in poor nations like Afghanistan.
   To prevent backlash, the United States must think about increasing trade with countries like Pakistan, Egypt and Saudi
Arabia.
   The nation must also get serious about refinancing the debt "that hangs over much of the developed world," Mayer said.
   "Until the debt is alleviated, it is going to cause a drag on those countries' ability to develop," he said.
   Finally, the United States has to re-commit itself to economic development in the poor parts of the world.
   The United States can't retreat from a truly global economy, Mayer said.
   "In the long-run," he said, "we are not going to be able to defend ourselves if there are millions of people around the
world who feel isolated."


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