SAN FRANCISCO -- Although it pales in comparison to the human tragedy, the assessment of the economic impact of Tuesday's events continues. Obviously, it's pretty easy to make a bearish case right now. This column attempts to provide a contrary view -- not because it's my job to provide uplifting commentary (as a handful of misguided readers seem to think). Rather, this column has always strived to provide an alternative to the so-called conventional wisdom, which is understandably dire regarding the economic impact of recent events. But "my view is that unless we react in a very poor way to this horrific event, it will not have a material impact on the course of the economy," said Edward Leamer, a professor of economics, management and statistics at the University of California at Los Angeles' Anderson School of Business. Note, Leamer is no economic Pollyanna. Late in 2000, he forecast the U.S. economy would experience "slight negative growth" in the second and third quarters of 2001, and believes the economy is currently in recession. But the professor compared Tuesday's tragedy to disasters such as the
Northridge earthquake near Los Angeles in 1994. The quake caused $23 billion of damage but California's economy grew faster in the quarter after the quake, he recalled. Estimates range between $15 and $30 billion regarding the direct damage caused by Tuesday's attacks. But the harsh reality is there will be billions spent on construction projects, the retooling of businesses and even corporate advertisements in the wake of Tuesday's harrowing events. "A recession is a sustained period of unwanted idleness, but natural disasters ... get us working harder to create jobs," Leamer continued. "There might be significant economic losses in physical damage, but capital flows increase because we'll all work harder and government expenditures are definitely part of the story." Indeed, the White House has requested a $20 billion emergency aid package and additional spending by federal, state and local governments is likely. Politicians are also now more open to tapping the Social Security surplus, which most economists argue is prudent given the economy's tenuous state. Although government spending, not consumer spending, kept the GDP out of negative territory in the second quarter, Leamer agreed further damage to consumer psychology is the biggest economic threat posed by Tuesday's tragic events. The University Of Michigan reported Thursday that a preliminary survey, taken prior to Tuesday's events, showed consumer confidence in September fell to its lowest level since March 1993. There are worries that reverberations from the terrorist attacks will further dampen consumer sentiment, greatly curtailing the economy's recovery effort. Reports immediately after the attacks that Americans will not buy cars or other big ticket items are "probably right for a couple of days, but we'll get beyond that," Leamer countered. "I have complete confidence Americans are going to persevere. If we do that, there's not going to be a huge economic consequence." It may sound callous but consumers who've been holding back might reflect on the tenuousness of life and decided to splurge. I'm no fan of rampant consumerism but the term "retail therapy" comes to mind. The proverbial mountain of cash on the sidelines might not find its way back into stocks, but might end up at the mall.