THE CAPTURE OF Khalid Sheikh Mohammed may bring a bit of cheer to anxious New Yorkers, and make nervous Wall Streeters take a rosier view of the prospects for the economy and their favorite shares. But I rather doubt that the relief will endure, especially when New Yorkers realize that bin Laden’s chief operating officer had plans for attacks on both their city and Washington. For terrorists looking for symbols of America’s economic and military might, New York and Washington just ain’t Fargo or Des Moines. (For which New Yorkers and Washingtonians might, in a calmer moment, give thanks!)
I regularly shuttle between the nation’s twin centers of news generation. In New York last week all talk was of a possible terror attack. Perfectly sensible friends are avoiding the subway during rush hours, on the theory that a terrorist will want to strike when trains are jammed with commuters. Everywhere I went I was asked about the timing of the start of the war to disarm Iraq. After all, since I had come from Washington, it was assumed that I have inside information on President Bush’s plans. It was impossible to steer the conversation to other subjects.
Washington, too, is tense, and friends here have designated rendezvous points for their families should there be an attack. But whereas New Yorkers, largely liberal, Democrats, are convinced that the administration is not competent to cope with the dangers we face, and that those dangers are a result of Bush’s bellicosity and obsession with unseating Saddam Hussein, most Washingtonians see things differently. They worry, but in the end they have faith that the government is doing all that can be done to minimize the success and consequences of any attempted terror attack. Besides, unlike New Yorkers, most Washingtonians, many of them administration backers and their families, agree with the president that war is necessary and in the long-term interest of the country.
But it is New York, and not Washington, that is this country’s business capital. So it is the mood in Gotham, dominated by massive layoffs in its key financial services industry and constant reminders that the World Trade Center is no more, that matters for the economy. And that mood is described by BusinessWeek as “CEO Funk.”
CEOs are not the only ones in a funk. Consumer confidence is at a nine-year low, as a weak job market, constant talk of war, and soaring gas prices have combined with record snowstorms to make life seem, well, difficult. A few hours shoveling one’s car out of a drift in order to drive to a gas station to pay some 50 cents more per gallon than a few weeks ago, while listening to ominous news, isn’t going to make anyone happy with the way things are going in America.
No matter that consumers continue to spend, or that the latest report on durable goods sales shows a robust 3.6 percent increase in January for the non-defense category, or that once the first bombs are dropped in Iraq we are likely to see a repeat of our experience in the last Gulf War. Remember, consumer confidence took a dive when Iraq invaded Kuwait, and rebounded quickly when that conquest was reversed. So the best-case scenario goes like this: Uncertainty will dissipate, oil prices will drop by at least $10 per barrel, consumers and CEOs will emerge from their funks, there will be a “relief rally” on the world’s exchanges, a weakening dollar will whittle away at the trade deficit, and the underlying strengths in the economy will reassert themselves.
Those strengths were best encapsulated in a story told to me recently at a private dinner party in Washington for a leading French intellectual and academic and some of his colleagues. Twenty years ago, he said, his best students wanted to join the French civil service. Ten years ago, they wanted jobs in the media, advertising, and other service sectors. Now, they want to emigrate, many to America, adding to our pool of risk-taking entrepreneurs.
High taxes and the massive amounts of red tape facing any entrepreneur are simply too daunting for France’s best and brightest. In Germany things are even worse, with Chancellor Schröder attempting to conceal the bankruptcy of his economic policy behind a barrage of anti-American rhetoric. That speaks volumes about America’s continuing comparative advantage over countries that have now positioned themselves as our rivals.
None of which is to say that all will be clear sailing for the American economy once Saddam is captured or “otherwise dealt with.” But America’s consumers and voters probably have it right. Asked to look ahead to next year at this time, 64 percent tell Gallup pollsters they expect to be better off, 12 percent expect their financial condition to be the same, and only 20 percent anticipate being worse off. If the war with Iraq goes as well as administration spokesmen expect, that cheery consensus view of 2004 could well prove correct.
Irwin M. Stelzer is director of regulatory studies at the Hudson Institute, a columnist for the Sunday Times (London), a contributing editor to The Weekly Standard, and a contributing writer to The Daily Standard.
