Soss's final point has to do with geography. The Internet was supposed to make physical location -- working at the company's headquarters -- passe. Instead, "the economy chose to agglomerate, with two-thirds of Americans living within 160km of our three salt-water coasts,'' he says.
If the terrorist attacks prove not to be a solitary event, it will require greater geographic dispersal of economic activity, complete with added costs, he says.
Okay, you're asking, so what does it all mean? It means about a trillion dollars over 10 years, that's what.
Soss outlines three scenarios for productivity and potential growth over a 10-year horizon. The difference between the pre-Sept. 11 scenario and the worst-case scenario, wherein productivity growth is permanently reduced due to the allocation of capital to unproductive uses (security and war), is about US$1 trillion, according to his projections.
Think of the added costs of doing business as a permanent ball and chain. The economy can't run as fast as it did before.
There's a middle course as well, the one advocated by Federal Reserve Chairman Alan Greenspan. In this model, productivity growth suffers a one-time hit to the level. After the higher costs are absorbed, the rate of growth of productivity resumes its pre-attack pace.
In other words, the level of productivity dips, but the slope remains the same.
"That's the party-line view," Soss says. "I'm always suspicious of the party line." In both the pre-Sept. 11 and Greenspan scenario, potential GDP growth is 3.6 percent. In the worst-case scenario, it's 2.8 percent. That 1.2 percentage point difference is significant and has serious implications for stock prices, interest rates, the federal budget -- in other words, just about everything traders and investors care about.
It's a big question. The answer is largely unknowable.
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