The Economy Will Be Fine — Assuming...

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Thereís an old joke about an economist trapped on a desert island, with the only sustenance a crate of canned goods that had washed up on shore. His fellow survivors ask the learned man his ideas for getting a meal. His reply: "First, assume we have a can opener."

So hereís the good news — economists seem pretty certain that the stock market will pick up by the winter, with a V-shaped economic recovery (steep decline, and steep return) beginning in the first quarter of 2002. Then itís up to middling growth in the second quarter, better-than-middling in the third, with a full-fledged brand new boom coming to an economy near you by this time next year.

[an error occurred while processing this directive]Itís irresistible, they say — $100 billion in fiscal stimulus from Congress, as many rate cuts as it takes from the Fed, the long-awaited upturn in the business cycle that was due to come this summer, then this fall, then this winter before Sept. 11 happened. Because Sept. 11 did happen, the dip will be deeper, but the comeback will be quicker. Unemployment will peak around, say, 6 percent in the spring, a lagging indicator as always, and by late summertime 2002 the living will be easy all over again.

All we need is the can opener.

The can opener is the basic assumption that makes all the above possible. Itís the way economists have of eliminating variables, of cleaning up the forecasts, of making the economic world nice and orderly for economists whose job it is to tell the future.

OK, maybe we need two can openers.

The first one is at the Pentagon — and in Afghanistan, Pakistan, Uzbekistan and pretty much any other Ėstan you can think of. Wall Street watchers figure the bottom is right around here somewhere, but investors still need a reason to be confident about the future — to rally the way they rallied when the Iraqi army turned out to be a bunch of weak-fighting surrender candidates, and it was suddenly, instantly clear that the U.S. was going to win, quickly and safely. Think itíll be that way with Osama bin Laden and his stateless, shapeless, cave-dwelling band? George W. Bush says no. Maybe we should keep that in mind.

The other can opener is all around us. Every economic forecast starts with, "Barring further attacksÖ" Barring a truck bomb on the Golden Gate Bridge, the markets, consumer confidence, and the economy at large should all snap back. Barring a suitcase bomb in the train station in Columbus, Ohio, consumer spending wonít move lower for the indefinite future. Then, fear will seem very real even in small towns. Barring any significant counterpunch from any of the terrorists or their sympathizers in the U.S. or abroad, everything will be just fine.

Donít forget — quick-fix airline bailouts and tax cuts are one thing, but the economic trends in the wings (if Sept. 11 turns out to be a one-time attack) arenít the stuff that booms are made of. The defense, security, and intelligence industries add little to the productivity of the economy — the multipliers just arenít there when you build something just to drop it on Afghanistan or keep steak knives out of carry-on luggage. Theyíll be valuable inasmuch as they make people feel safer, get them traveling and spending again, but theyíre investments with very little tangible return as far as allowing the economy to grow without inflation. And thatís only if they work.

Assume that Americaís recent run of easy conquests continues — and it wonít be long at all before Tom Ridge sinks quietly into a swamp of bureaucracy, the recession is over and the economy is back and more robust than ever. Our fundamentals remain strong and our consumers have short memories and long habits. We have a capable Fed and a White House that seems to understand that picking winners and losers is not something the government is known for doing well.

But it seems premature to discount that these terrorists, who are 3-0 now — remember the embassies, and the USS Cole? — and smart enough to not only hit the strongest country in the world where it hurts but short the markets ahead of time, have any tricks left in their deadly bag. If they hit us again, if they merely frustrate our mighty military, if this post-attack world lasts three or four or twenty years, our economy will not take long in adjusting to the new reality.

Better bring a can opener.