Economist says attack will stimulate

Two economics professors, a social science professor and a student who was investing before he was shaving can all agree that the history-making, four-day closing of the market and its subsequent Monday return that resulted in a 685 point drop is abnormal. But they sharply conflict when it comes to forecasting the effects it will have.

Richard Coe, a social science professor from New College, said last week?s events could throw the nation into a recession, which he said is typically defined as two quarters of negative growth.

?This could be the straw that broke the camel?s back,? Coe said. ?Overall, this will result in a further slowdown of the economy.?

Coe said the effects will be absorbed mostly by the lower class and that the unemployment rate will increase as well.

?This will hurt low income people and will be more widespread through the financial sector,? Coe said.

?There?s no sign of a bottom here.?

Joseph Salvo, an economics professor at USF, disagrees and said instead the economy will be stimulated.

Salvo compared the economic effects of the attacks to the economic effects of a hurricane.

?There?s a loss of three buildings and lots of people, but when you factor (the economic effects) against the gross domestic product, its just a pin prick,? Salvo said.

He said the only negative effects to stem from the attack will be minimal.

One effect, he said, is called the wealth effect, wherein a person?s net worth is derived from their income plus their stock holdings. He said as the stock market goes down, people will be more careful how they spend their money.

?When the market contracts, people?s wealth is lowered,? Salvo said. ?People then feel poor and consequentially cut down on their expenditures, but that is just a blip on the radar screen.?

He said though the short term reaction to the attack may be negative, the long term results will be positive as a result of the Federal Reserve lowering interest rates more than usual, Congress appropriating $40 billion to help build U.S. military forces, and the president?s tax cut.

?Fiscal and monetary policies are being stimulated,? Salvo said.? ?From this there will be more positive than negative in the economy.?

Ed Ford, another economics professor at USF, said he agrees with Coe and Salvo partially, saying he can see how the economy may be stimulated in some ways, but said the overall effect will be negative.

?We economists are like weathermen, and though potential stimulants might offset a recession, I think we are more likely to see the economy decline,? Ford said.

He said the positive effects will come from more jobs being created as a result of increase spending in defense, security, and technology as well as paying for the reconstruction of Lower Manhattan.

Ford said the impact could be felt locally as well.

?Students are likely going to have more difficulty finding jobs,? he said. ?It?s a good time to stay in school and get additional training.?

He said the state of Florida is also vulnerable to feeling the brunt of the possible recession.

?Since the Florida economy is dependent on tourism, it might be impacted,? he said. ?People tend to cut back on their traveling when they are worried about their incomes.?

Kristian Horneland, a 21-year-old USF senior who has been investing since he was 11, said investors should not be worrying so much about the economy, but instead, doing their homework.

?Don?t panic. Sit back and analyze,? Horneland said. ?Having patience will be the best investment you can make.?

Horneland said he pulled out of the U.S. stock market a few months ago because of its volatility.

He said his plan now is to sit on cash and bonds and invest in foreign currency in the future because the value of the U.S. dollar is slowly decreasing.

Contact Ryan Meehanat