Experts debate economic effects

With major sections of the world's financial hub now in ruins, experts are already debating the possible devastation that yesterday's attacks could have on the nation's lagging economy.

The World Trade Center was a center of international business, housing dozens of corporations and financial firms.

Wharton Finance Professor Jeremy Siegel said the looming recession just might have been accelerated by yesterday's dramatic events.

"Our economy is already almost in a recession -- this is the type of psychological hit that would definitely push it over the brink," said Siegel, the author of the bestselling book Stocks for the Long Run.

He said that travel, transportation and tourism economic sectors would be "devastated."

"People don't want to -- are frightened to -- travel," Siegel said, noting that the air travel industry would be especially hard hit, due to the use of planes in the terrorist attacks. Spending on business travel is already at its lowest point in years as the red-hot economy from the late 1990s begins to cool.

"I remember during the Gulf War there was no terrorist activity on planes, and yet worldwide air travel was down dramatically during the entire Gulf War period," he said. "And that was a very big negative to the economy."

Consumer spending also might feel the effects.

"People are going to be fearful, and people when they're fearful do not spend," Siegel said. "They don't feel confident."

While acknowledging that certain sectors of the economy would be hard hit, Penn City Planning Professor Stephen Mullin believed that the devastation might actually help the national economy.

"Remember what happens in wartime when people put their shoulder to the stone -- we might wind up seeing a little bit of that right now in this country," said Mullin, who is also a senior vice president with Econsult Corporation, an economic consulting firm. He added that "less partisanship" at the federal level as a result of the tragedies might also work to the economy's benefit.

However, Siegel maintained that nothing short of action by the Federal Reserve Bank would keep the economy off the skids.

"There's no question that the Federal Reserve has to be much more aggressive in lowering [interest] rates," Siegel said, explaining that he thinks the rates should be decreased by 50 basis points today. The domestic stock markets will likely drop when the markets finally open, he said, and the rate cut will be necessary to keep them from plummeting further.

Yesterday, the New York and NASDAQ stock exchanges were closed, but worldwide markets slumped on news of the havoc. The exchanges remain closed today.

"Uncertainty always does breed a decline in the market," Siegel said. "The market hates uncertainty."

With some assuming the terrorists may be from the Middle East, the main source of American oil, the fear of further unrest there will likely cause oil prices to soar in the short term, according to Penn Public Policy and Management Professor Howard Pack.

And the loss of a major piece of real estate will also have a significant impact in New York, and possibly in Philadelphia, Mullin said. The World Trade Center contained about 7 million square feet of office space, which housed the headquarters of many top financial firms. In order for the affected business to get back on their feet, part of the solution will be to replace that office space.

Due to the tragedies, and an already tight New York real estate market, Philadelphia might gain corporate tenants.

"Some of those companies might say, `There's no way I'm going back to work in New York,'" Mullin said.

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