14 September 2001

War Against Terrorism Like A New Tax on U.S. Economy

By Andrzej Zwaniecki
Washington File Staff Writer

Washington -- In the aftermath of the recent terrorist attacks, new expenditures on airline security, reinforcement of existing buildings and structures, and changes in construction are likely to dampen the growth of U.S. productivity, says Robert Litan, Vice President of the Brookings Institution, a Washington think thank.

"Whoever did it to us, has put a security tax on the United States, of uncertain amount and of uncertain life, but likely to exist for some time," said Litan, a participant of a September 14 Brookings Institution briefing "America's New War Against Terrorism: The Impact on U.S. Foreign Policy, the Economy, and the Way We Live." The money the United States will spend on safety, security, and military measures following the terrorist attacks will drain resources that otherwise would be used in more productive ways, Litan said.

On the positive side, the economy will get a boost from new military spending, Litan said, although, the increase is likely to be limited to the defense industry.

In the short run, the way U.S. consumers react to the recent terrorist attack will be a critical factor for the U.S. economy, Litan said. He believes concerns about a war against terrorism are likely to lower further falling consumer confidence but may also encourage the U.S. Federal Reserve Board to cut interest rates more steeply.

On the world arena, U.S. economic worries may or may not translate to a global crisis, Litan said. But he warned against taking the globalization trend for granted pointing to the period between World War I and World War II, when the world trade decreased dramatically.