The National Interest: May I begin, please, by asking each of you your view of what has happened, or not happened, since this past September 11 that may be described as out of line with the early post-attack expectations of economic analysts?
Martin Feldstein: After September 11 of last year, you will recall that stock markets collapsed, and the reason was obvious: People were afraid. Consumers worried that the U.S. economy would go into a tailspin, and businessmen worried that such expectations would create a self-fulfilling prophecy. In fact, the economy did very well. It has since slowed down, but this is part of a normal cyclical pattern. I don't think we can attribute very much to September 11 insofar as broad economic effects are concerned, and I think this does run contrary to many expectations at the time.
Carla Hills: Anticipations of damage may have been excessive, but security concerns continue to be a drag on the market. Companies are spending for protection, an expense they had no idea would be needed before last September 11. The congestion at our borders, north and south, has had an adverse effect on some sectors, too. Many believe--indeed, the administration has said explicitly that it believes--that another strike is highly likely. This makes the market quite jittery, and this is not about to go away.
TNI: Let me ask this as an addendum: Had the war in Afghanistan not gone as swiftly and successfully as it did, do you think it would have made any difference? In other words, would a general lack of confidence in the conduct of the war against terrorism have translated psychologically into a greater lack of confidence in the economy?
MF: Good question, but it's very hard to say.
