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Dallas Fed examines defense technology spillovers, insurance and Latin American market reforms

For immediate release: July 18, 2002

DALLAS—The latest issue of the Federal Reserve Bank of Dallas Southwest Economy addresses the age-old economic question of guns or butter.

The classical dilemma suggests a trade-off in which increased military spending saps the commercial sector. But in "Seeding Technology with Defense Dollars," Senior Vice President and chief economist W. Michael Cox says it's not always that way. Over the years, military research has made important contributions to the civilian economy, many of them rarely acknowledged. Just as today's economy is propelled by the computer, the Internet, global positioning system satellites and nuclear powerâ??all of which have roots in past military projectsâ??entrepreneurs are likely to develop important new industries from what's being done today to win the war against terrorism.

In another article, Dallas Fed economist Fiona Sigalla examines the integral role the insurance industry plays in our economy in "Insurance: A Risk to the Economy?" Catastrophic claims from September 11 and escalating noncatastrophic claims, such as mold damage, made 2001 a difficult year for insurance companies. Weak growth in investment earnings in 2001 left insufficient industry capital to offset tremendous underwriting losses. In response to these huge losses, insurers have increased premiums sharply. Sigalla concludes that recent changes in the industry are likely to make risk-averse individuals and businesses unwilling to engage in activities that are not covered by insurance or not covered at a price they can afford, which will lead economic activity in the United States to be less than it otherwise would have been.

Finally, a wave of criticism against market-friendly reforms is spreading throughout Latin America. In "Latin American Market Reforms Put to the Test," senior economist Carlos Zarazaga and associate economist Sherry Kiser examine the reasons for such a negative assessment of past accomplishments. They conclude that it is too early to give up on market-oriented reforms as the best strategy to deliver on prosperity-for-all promises.


Media contact:
James Hoard
Phone: (214) 922-5307