9/17/01

TERRORISM WILL HAVE LITTLE REAL IMPACT ON ECONOMY

By Lester Thurow

Lester Thurow is a professor of economics and management at the Massachusetts Institute of Technology and has written "Building Wealth: New Rules for Individuals, Companies and Countries in a Knowledge-Based Economy.''


CAMBRIDGE, Mass. -- In comparison with the loss of life and the insecurity that billions of people now feel in their everyday lives, the short-run economic consequences of terrorism are trivial.

The third and fourth quarters will be a little weaker than they would have been. The travel and financial-service industries were completely shut down for nearly a week, and the travel industry is going to be slow to recover. The rebuilding of New York City will add a little to the GDP down the road. But the American economy is very big, with more than $10 trillion in annual output. Relative to the size of the economy, even big terrorism isn't big enough to disrupt either the American or the global economy.

What is important is long-term inefficiency costs that we will impose upon ourselves. If these could work, they would be worth doing, but we know before we start that they are going to be ineffectual. While serving a purpose, locks, alarms and security guards are all marks of inefficiency. Taking hours to check in at airports is a waste of time -- your time, my time, the time of the people who are running the security system. These activities provide a feeling of personal security that should come free of charge. Technically, they add to GDP but they are really positive services designed to offset the effects of the negative services generated by terrorists. In terms of our real standard of living they cancel each other out.

(c) 2001, Global Economic Viewpoint. Distributed by the Los Angeles Times Syndicate International, a division of Tribune Media services.
For immediate release (Distributed 8/15/01)

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