Andreas Hauskrecht, clinical associate professor of business economics and public policy at Indiana University's Kelley School of Business, discusses whether Sept. 11 had a lasting impact on the U.S. economy. Other Indiana University faculty members share their insights here: http://newsinfo.iu.edu/news/page/normal/19355.html.
My name is Andreas Hauskrecht and I am a professor at the Kelley School of Business , in the economics department, and I am a specialist for banking and finance. And I would like to use the opportunity to discuss the economic and financial consequences of the events of Sept. 11.
In my view and for many people surprising, there were almost no impacts on the U.S. economy or the financial system, specifically because the Fed very quickly acted, opened the open market window and also arranged, for example, swap arrangements with other central banks in the world, and avoided a financial and economic crisis.
I think as well that for many people it is a misconception to think that the United States has done worse economically than other financial and economic centers, such as Europe and Japan. In fact, if you look at the hard data, the U.S. economy has grown faster. The role of the Dollar, for example, as an international reserve currency has strengthened, and the Dollar is until today the undisputed international key currency.
Many people link the current economic and particularly budget problems to indirect consequences of the events of Sept. 11, particularly the war spending. While I do not dispute that the war spending is significant and is a fiscal burden, I don't see it as a key issue to solve our problems or be a reason for our problems. War spending is discretionary and discretionary spending happens and will disappear. The real problem that we face in the United States currently is that we have insufficient revenues and excessive spending such as on entitlement programs.
So the solution is clear: either you increase these revenues or you cut entitlement spending or you do both.