The events of Sept. 11 ensure a recession in the United States, but it should be gone by the middle of 2002, predicted the head of the Department of Economics at an Oct. 11 teach-in on "Economic Implications" of the terrorist attacks. He further foresaw little impact on the US economy over a 10- to 20-year period.
Professor Olivier Blanchard was joined by three other MIT panelists to discuss the economics of the crisis, including its origins and long- and short-term impacts. His fellow panelists were Professor Abhijit Banerjee, Visiting Professor Kaushik Basu and Visiting Professor Ephraim Kleiman, all of economics.
Banerjee acknowledged that poverty and a lack of opportunities contribute to the ability of terrorist groups to recruit members. He emphasized, however, that many of the Sept. 11 hijackers and members of Al Qaeda appear to be well-educated and affluent. Also, Pakistan, Algeria and Egypt are not the world's poorest countries.
Instead, Banerjee believes that the primary reason for terrorist groups' growth in these countries is "the complete abdication of the state from providing public goods." In all of these countries, for example, "the state has basically given up on the job of providing schools." Religious institutions have stepped into the void and "have had hegemony over providing these public goods." As a result, "the usual elements of local politics are missing. So the people who join these radical movements are not offered the option of becoming politicians in a normal way."
He therefore stressed the importance of "re-establishing a supply of public goods provided by the state" through local governments and "training in nationalistic rather than religious venues."
Basu said globalization has left many countries feeling marginalized in international decision-making, and "the level of inequality [among countries] is increasing." To really cut off terrorism groups, "we must cut off some of the reasons for marginalization."
What can be done? For one thing, he said, we need to ensure democratic representation in international economic organizations like the World Bank. Each country, rich or poor, should have the same representation.
"If someone today said that Bill Gates should have a bigger say over our government because he contributes more to it, we would be shocked. The same applies to those who say the U.S. should have a larger say in the organizations it contributes greatly to."
"In the global context," Basu said, "we translate money into political power, and I think we need to work on this."
Frustrated expectations related to oil booms and busts in the Middle East must also be considered background to terrorism, said Kleiman. The oil-price rollercoaster has resulted in large swings in wages, and "tremendous problems of unemployment and underemployment."
Blanchard added a key qualification to his predictions of short- and long-term effects on the US economy: future events. For example, he said, "oil supply shocks can have very nasty effects on the US economy." And anything that affects the gulf countries could affect oil prices.
The Oct. 4 and 11 teach-ins were the last two in a series sponsored by the Center for International Studies in cooperation with the political science department, Boston Review, the foreign languages and literatures section, the Program in Science, Technology and Society, the Comparative Media Studies Program, the economics department, and Office of the Dean of the School of Humanities, Arts and Social Sciences.
A version of this article appeared in MIT Tech Talk on October 17, 2001.