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Monday, April 23, 2012

Effects of September 11th

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The Effect of September 11th


on the United States Economy


The terrorist attacks of September 11th have changed the United States forever.


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Although, terrorists were causing destruction in other countries, the United States felt as


If we were immune to such acts. The throughly planned attacks on the New York and


Washington D.C. on September 11th, which caused the deaths of many, has changed


the American psychic forever. Terrorism is an issue that is on the minds of all


Americans because it is now a realistic threat.


The psychological factors aren’t the only damage caused by the horrific events


of September 11th. It has also caused damage to the United States economy. Before


the attacks, the economy was the starting to slow down. Consumer spending was


decelerating in 001. Production was also beginning to slow down. But, the slow


down was part of a natural process of the business cycle. This would have eventually


led to plenty of growth. The stock market was also taking a beating. Stocks were going


down considerably.


Consumer spending starting to increase from mid year right through August


001. There were also hints that industrial production might have soon stopped falling.





In early August and early September surveys by the National Association of Purchasing


Management, more manufactures reported increases in orders than decreases. The


September 11th Attacks “came at a time of weakness in the economy and the


subsequent economic shock these events caused compounded the uncertainty that


was already widely felt and moved our economy into uncharted waters.” 1


The airline industry has suffered the most after September 11th. The airline


industry is in serious trouble and there is no let up in sight. Consumers have developed


a fear of flying, fearing a repeat of September 11 or something even more horrific.


Therefore, consumer purchasing of airline tickets has fallen drastically. This has lead


to many layoffs. The Government gave the airlines $15 billion in governmental


assistance. Despite the governments help, Reportedly, between September and the


end of December 001 114,711 people were laid off in the airline industry. US Airways


filed for bankruptcy in August 00 and United Airlines filed for bankruptcy this year.


American Airlines has asked its employees to take a pay freeze next year. American


Airlines also says pay cuts will most likely occur in 004. “Passenger traffic and ticket


prices have fallen sharply, resulting in bankruptcy filings by US Airway and United


Airlines, industry wide losses of $ billion in 00.”


The insurance industry has also suffered a great deal from the September 11th


attacks. The insurers had to cover the loses from the attacks, which have surpassed two


billion dollars. Demand for insurance has increased considerably because of


anticipation of additional terror attacks. But, because of the high damages, insurance


1 Jay Mousa and Oriane Casale, “Economic Impact of Sept. 11th,” Minnesota Employment Review (October 001)


Foss, Brad. “War Could Clear Way for Airline Layoffs,” (Seattle Times, 00. Online, Accessed 1 May 00) Available from http//seattletimes.nwsource.com/


html/businesstechnology/14657140airlinelayoffs0.html.





companies had to pay out, they are continuously raising their prices. “ The price hikes


are passed along to other companies, to governments, and ultimately to the individual


taxpayer and consumer.” Food and other basic consumer items will also become more


expensive as freight insurance costs increase.


These figures are sobering enough, but they reflect only an immediate and


short term cost perspectives. Unfortunately, the economy is still being damaged due to


the knowledge among economic producers and consumers that another attack could


come at any time and have even more serious consequences. This uncertainty has had


serious ripple effect throughout the entire American economy because of lingering fears


of another terrorist incident. “The ripple effect of layoffs, caused by businesses and laid-


off workers cutting back on spending for goods and services, will be felt in other sectors


of the economy including manufacturing, construction, and a number of services


industries.” 4


Immediately following the September 11th attacks there was a huge drop in


consumer spending across the United States. Spending patterns shifted from luxury


products to basic, everyday goods. In September 001, retail sales fell by $6 billion (.1


percent) ; durable goods new orders fell $11.6 billion (6.8 percent); But there was a


huge increase in demand for U.S. flags after September 11th. This actual gave the


global economy a lift. The domestic manufactures were not able to keep up with the





Harry Hayes, “Economic Cost of Terrorism,” (International Review, accessed 1 May 00); available from http//www.geocities.com/Paris/Rue/467/terr5a.html.


4 Jay Mousa and Oriane Casale.


increasing consumer demand, therefore they had to depend on Chinese factories to


help in the production of flags. There were 51.7 million flag imports in 001. As


more time has passed since the September 11th attacks have occurred, consumer


spending is returning to more of a normal pace.


Following the attacks, production output had dropped drastically. However,


production fell 1 percent in September. This level of output was low for a while, “ but as


damaged homes and factories are rebuilt and damaged furnishings and equipment are replaced, output growth is elevated. The economy will soon be back on it’s pre-disaster path.” 5


In many was, this potential nightmare, cause by September 11th, has done more damage to the American economy than the actual destruction of its economic aftermath. Because what might happen next, Americans are afraid to fly on the airlines, travel to New York or Washington D.C., invest in the stock market, buy new home, or spend any of their savings on big ticket consumer items.


This psychological aspect of September 11 is doubly damaging, for not only does it harm the economy today, it harms the economy for the foreseeable future. It generates a chain of reaction of damage, for when consumers don’t spend due to fears of terrorist attacks, other consumers who work in retail travel, service, transportation, and a variety


of other industries lose their jobs. Subsequently, they can’t spend any money either and


5 Evan F. Koenig, Down But Not out The U.S. Economy After September 11, (Dallas, TX, 001, accessed 1 May 00); available from http//www.dallas.fed.org/htm/


research/vita/koenigvita.html


of other industries lose their jobs. Subsequently, they can’t spend any money either and


the economy suffers even more.


The airline, restaurant, travel, accommodation, tourism, postal services, and insurance industries are particularly vulnerable to increased terrorism risks. Regions of the country and economies where these industries are concentrated are likely to suffer the most from output and employment falls due to the September 11th attacks. Responses by the airline, tourism, and hotel industries involving discounting in order to attract travelers have not proven very effective, for such incentives reduce the return on capital and undermine future investment.


In macroeconomic terms, according to a number of leading economic forecasters, the events of September 11 will lower America’s annual gross domestic product, the widest measure of economic output, by at least two percent from what it otherwise would have been. And because a nation’s economic output is roughly equal to its income, which would work out to about two-hundred billion dollars, which works out to about two-thousand dollars on average for every American household, not only this year but also for several years into the future. Americans will be paying for September 11th for many years yet, and many of the losses that have already been incurred can’t ever be made up.


Leading economic experts estimate that the September 11th attacks destroyed at least fifty billion dollars in physical assets in New York City and Washington D.C. Increased security measures and reduced tax revenue from high post September 11 layoffs have caused the debt levels of the state and federal governments to rise by more than one-hundred billion dollars from what they would have been as a result of additional spending financed by borrowing.


When one considers all of the direct and secondary economic effects of the terrorist attack, including the impact on corporate and household finances, the short term damage done to the American economy is in the tens of billions of dollars. When one projects lost productivity, sales, jobs, revenues, and other related economic consequences, “the estimated costs of September 11th attacks to the national economy ranged from about $170 billion to almost $50 billion.” 6


In examining the effects of September 11th in the long term, things look a lot more promising. Economists says there are several important stimulus that should make economic activity rebound. First, the federal reserve cut short- term interest rates. Also, the major tax reduction which is occurring, including the tax rebates which were giving out, the emergency spending bill enacted just after the attacks, and the fiscal stimulus bill. These programs add up to a major amount of stimulus- perhaps around $160 billion in fiscal year 00. Also, energy prices have declined this year. This price of imported oil has fallen by nearly half since last November, and the price of natural gas has fallen even more dramatically. These prices declines give firms and households more purchasing power, and they should help stimulate demand. The “over hang” of capital equipment and software, as well as inventories, that I mentioned earlier is one that will correct itself with time. At some point, the stocks of these assets will get too low


enough levels that firms will need to start spending on them again. 7


6 Donald H. Rumsfeld, Transcript of Testimony at Defense Subcommittee of Senate Appropriations, 1 May 00, Washington D.C.





Noone really knows when the economic recovery will occur. It basically agreed


upon that the in the long run, the economy will recover. Some economist say the fundamental recovery in the long run are strong. The factors leading to this conclusion are inflation has been pretty low and stable in the United States. This allows our market system to work efficiently, and it has allowed the Fed the flexibility to ease policy aggressively. In terms of fiscal policy, we came into the current situation with the federal budget in surplus. That promoted private saving and investment, and it allowed fiscal policy to ease aggressively.


Also, out economy has a resilient structure, financial markets are deregulated, the banking system is sound, and our labor markets are flexible� so we can adjust relatively quickly to the kinds of shocks we’ve recently suffered. Also, the kinds of technological advances that propelled the economy in the latter half of the 10s are still in train. These developments operate on a long time scale, and they’re not likely to be affected


much by the kinds of cyclical developments we face today. 8


In conclusion, the /11 terrorist attacks on America changed the country forever, for despite the historical reality that global terrorism had existed for nearly thirty years, the ambitious nature of the attacks upon New York City and Washington D.C. And the terrible death toll that resulted demonstrated that terrorism had become a strategic threat


7 Robert T. Parry, The U.S. Economy after September 11, (San Francisco, 001, Accessed 1 May 00); available from http//econpapers.hhs.se/article/fipfedfel


8 Robert T. Parry


to the United States.


The American economy suffered from /11 not only in an immediate and short term sense, it was also damaged due to the knowledge among economic producers and consumers that another attack could come at any time and have been more serious consequences. This has long term negative implications, for because of fears of more attacks, consumers don’t travel as much, which is crippling the airlines, and are hesitant to spend their money on products or services, which loses other consumers their jobs and escalate the economic downturn even further. Although one can totally relate the problems given to the insurance and Airline industry to September 11th. One can’t be sure of the true reason for the decline in other aspects of the economy following the attacks. It could have been totally because of the regular business cycle, which was on the downside before the attacks. One thing we all can agree on is, the United States economy will recover.


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