This won't be the focus of financial markets, however, which are predominantly concerned with the possible hit to consumer confidence and spending. If yesterday's attack is a one-shot deal, and there aren't any other forms of psychological terror, such as bomb threats, any effect on confidence should be short-lived, Kasriel expects.
And if the central banks "act in a coordinated manner within the next few days -- providing liquidity, and then formalizing it in terms of a lower interest rate target -- it could have a powerful effect on confidence, says Jim Glassman, senior US economist at J.P. Morgan Chase.
Then there's the argument one hears anytime a natural disaster leaves destruction in its wake: that the rebuilding effort will be great for the economy.
Think of all the non-residential construction that will take place following the collapse of the World Trade Center's twin towers and damage to the surrounding area.
``We'll produce more -- that's for sure -- but we'll be poorer," says Bob Laurent, professor of economics and finance at the Illinois Institute of Technology's Stuart School of Business in Chicago.
It's as if an increase in housing starts without more net new homes. Scarce resources have to be allocated to get us back to where we started. That represents a decrease in living standars -- a negative shock to productivity -- even though the increased activity will add to real GDP growth.
If destruction were really such a good thing, why wait around for acts of God to occur? Why not destroy our own cities and constantly rebuild them? While there will no doubt be a monetary policy response to the ailing economy, if not to this week's events, the fiscal policy response is apt to be greater.
"You remember that locked box?" Kasriel asks. "It's unlocked. Defense spending? No problem. Is the government going to cut back on other spending? No way." In the spirit of bipartisanship in the wake of Tuesday's tragedy, "we'll have more government spending than we would have otherwise," Kasriel says. "And we may even get a capital gains tax cut."
The effect on consumer confidence may be transient. Any change in fiscal policy will be with us for a while.
"The recovery may be delayed, but when it comes it will be stronger than it would have been," Kasriel says.
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