Weathering attacks on the U.S. economy

0 Comments | Insight on the News, Oct 1, 2002 | by Jamie Dettmer

More than a year after Sept. 11, the economists still are trying to calculate the costs to the U.S. economy of the terror attacks. Most had thought the immediate impact would be to prolong the recession: Merrill Lynch had forecast it would last until the first quarter of 2002 and others had projected negative growth could last even longer.

But the U.S. economy proved more resilient than was expected. (Okay, Greenspan can take a small bow for that.) And the strength is all the more surprising when you add on the second blow to the economy: the massive corporate wrongdoing that started to emerge in December 2001 with the collapse of Enron Corp.

The bigger question now is: What long-term impact will the war on terrorism have on the U.S. economy? Derek Leebaert, author of The Fifty-Year Wound, a book analyzing the economic costs of the Cold War, worries that a prolonged conflict could hold back innovation and entrepreneurship because of a "return of big government, big labor, big business--with minimal attention to the market." In a fascinating interview with Brian Mitchell of Investor's Business Daily, Leebaert warns of the "bad habits" of the Cold War lingering to influence the war on terrorism--"like the temptation to paint with a really broad brash. We talked about anticommunism in general, so we would see problems everywhere as all the same problem. Ditto today when we talk about antiterrorism."

Leebaert doesn't argue the Cold War shouldn't have been fought: "Of course we had to fight the Cold War, but did we have to fight it on such terms?" His anxiety now comes with how wide the war on terrorism may become. "During the Cold War we had McGeorge Bundy, Henry Kissinger, Walter Rostow, for example--people who knew very little of what they were talking about. Today one finds so many high-testosterone enthusiasts who are eager to whack Iraq or whack Iran without thinking it through."

He warns: "[President Dwight D.] Eisenhower never bought into the idea that military spending boosted productivity over the long term. He was adamant about it, and so were all the members of his Cabinet. They understood military spending was like putting money down a rat hole, because it was unproductive."