Economist devalues
terrorist financial impact

An ex-presidential adviser tells an
isle forum that he's optimistic
about Hawaii's future

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By Rick Daysog
rdaysog@starbulletin.com

The Sept. 11 terrorist attacks may have caused $10 billion in property damage but one influential economist believes the direct financial impact of the tragic event has been overstated.

Michael Boskin, former chairman of the Council of Economic Advisers under President George Bush from 1989-93, said that direct losses are small when compared to the size of the overall U.S. economy.

Boskin, the guest speaker at First Hawaiian Bank's 32nd annual business outlook forum yesterday, said that over the long term, the attacks should not have a huge impact, unless they continue to significantly depress consumer spending and business investment.

"In general, there has been an overreaction to the events of Sept. 11. ... People had an Armageddon reaction," said Boskin, now a senior fellow at Stanford University's Hoover Institution. "But as tragic as they were, they were small in a $10 trillion economy with 135 million workers."

Despite the disaster's impact on air travel and hotel bookings in Hawaii, Boskin was generally upbeat about the state's economic prospects.

The national economy, which has been in recession since the second quarter, will likely recover by the middle of next year, boosting visitor arrivals, he said.

Meanwhile, Japan -- which is in its fourth recession this decade -- will take more time to rebound. Japan's banking system continues to struggle with bad loans, hampering economic growth.

Once the banking crisis is cleared up, it will free up much of the nation's capital and boost economic activity and visitor travel to Hawaii, he said.

"I'm very optimistic about Hawaii's long-term future," Boskin said. "We'll get out of this recession and the economy will rebound."

First Hawaiian Bank economic consultant Leroy Laney said that Hawaii's economy will begin to bounce back by the middle of next year but won't likely get back to its pre-Sept. 11 levels until 2003.

Laney, an economics professor at Hawaii Pacific University and the bank's former chief economist, said he expects Hawaii's gross state product -- the widest measure of the islands' economic activity -- will increase about 1.8 percent this year and 0.5 percent next year before bouncing back. GSP grew 3 percent in 2000.

"Obviously, 2001 went suddenly from 'pretty good' to 'catastrophe,'" Laney said. "And 2002, we hope, we will make a transition from 'bad' to 'recovery.'"