Economic repercussions of the 9/11 attacks on the US economy

¶ … Long-Term Economic Repercussions to the U.S. Economy that were the result of the 9/11 attacks

The Short- and Long-Term Economic Repercussions of the 9/11 Terrorist Attacks upon the United States Economy

Much has been debated and much remains yet to be said about the terrorist attacks on the 11th of September 2001. Probably the most devastating attacks upon the American state, the destruction of the Twin Towers has generated numerous chain reactions. First of all, there were the social effects, due to which people felt demoralized and unsafe in their own homes. Then, there were the thousands of families whose lives changed for the worse with the loss of a dear one. Politically, the state changed its approach to international relations. However, a large impact of 9/11 has taken its toll on the economy, coming as such to impact basically every American citizen, resident or economic agent. The aim of this paper is to asses the short- and long-term effects of the Al-Qaeda attacks upon the economy of the United States.

2. Economic Effects of 9/11

A discussion on the economic effects of 9/11 is difficult to commence simply because the topic is quite complex and the researcher might find it challenging to identify a proper start. However, it could have all started with the change in international relations. After the hijacking of the four planes, the Bush administration decided to limit the foreigners' access to the United States by implementing more numerous and drastic immigration policies. Among the targeted populations were the foreign students, many of whom found it impossible to return and continue their studies within the U.S. This measure has a twofold impact on the economy:

- First of all, a short-term effects of the individuals that were prohibited from reentering U.S. territory translated into a reduced customer base for American manufacturers and service providers; their sales decreased and consequently, the taxable revenues became reduced; ultimately, this materialized in lower contributions to the federal budget

- Secondly, on the long-term, the United States lost numerous potential professionals. To better explain, the foreign students were attending prestigious universities and studying to become lawyers, medical doctors, engineers, technicians and so on. Many of these students were planning on acquiring American citizenship and forming a family and a profession within the U.S. But their impossibility to return to their studies means that the U.S. lost these future professionals, some of whom might well have become reputable and successful managers or medical researchers that could have even found a cure for cancer.

2.1 Economic Effects upon the New York City

In the immediate aftermath of the attacks, the authorities feared that the loss of lives might be so tremendous that the levels of U.S. productivity could be compromised due to the loss of so many employees. However, the statistics revealed that this was not the case for the United States; but nonetheless, the New York City and the Washington D.C. area were severely impacted. The destruction of the World Trade Center brought about the death of 2,699 employees from various domains. Out of these, 501 belonged to rescue teams, such as firemen or policemen. A staggering 78% of the remaining 2,198 individuals had been employed in finance, insurance and real estate. Also, 36% of the people killed in the airplanes were traveling for business purposes (Dolfman and Wasser, 2004). This means that the labor force in the New York boroughs and companies decreased significantly with the loss of these workers, but also due a severely impacted morale of the colleagues who survived them.

On the short-term, another problem aroused in the New York City -- with the destruction of the World Trade Center, many employers were left without office space. They were as such forced to find new locations for their business operations, and a trend was observed in a migration towards New Jersey. At this time however, the United States was struggling the threats of an economic recession, which meant that the difficulties of the New York City would exponentially increase. Out of a total of wages lost outstanding $30 billion in New York in the 2000-2002 time period, about $9 billion (an estimated 30%) have been lost directly due to the terrorist attacks. The table below shows how the September 11 attacks led to significant job losses, and how the NYC was only able to generate some stability in its employment structure starting with the last quarter of 2002:

Source: Dolfman and Wasser

Most of the jobs lost in the city belonged to the export sector, with the effects on the import sector being less prominent. An interesting element to consider is that the terrorist attacks upon the World Trade Center generated a swift in the employment interests of the population. The New York City had always been prosperous and focused on high quality healthcare, education, social services and charitable events. In the aftermath of the attacks, more and more individuals became interested in working within these domains. By 2002, the sectors employed 14% of all labor force, in a context in which the national average was of slightly over 9% (Dolfman and Wasser).

2.2 Nationwide Effects upon the U.S. Economy

In his 60 pages report for congress of 2002, economic policy specialist Gail Makinen detailed several nationwide effects upon the United States economy. Some of the most relevant of his findings are succinctly presented below:

Productivity: On the long-term, productivity levels are expected to decrease as the large majority of the resources will be allocated to increasing national security, rather than production; otherwise put, a reallocation of the resources will be achieved and a direct result of this will materialize in reduced productivity of the American manufacturers

Oil: it was initially expected that the prices of imported oil (mostly from the Middle Eastern regions) would increase and pose significant threats upon the U.S. economy; this fear materialized on the short run, but the prices regulated in about a week and no threats on the long-term were obvious (the oil prices did increase in the following years but this was not directly connected with the September 11 terrorist attacks)

Trade with partner countries: in the immediate aftermath of the attacks, import and export operations with Canada were disrupted; however, efforts were made and the problem did not generate long-term repercussions. Nonetheless, one long-term threat exists and it revolves around increased difficulty in conducting open trade, due to both increased emphasis on safety as well as reduced productivity levels, which will negatively impact the sustainability of free and efficient international trade between the United States and other countries.

Flows of capital: similarly to other economic indicators, the inflow of capital to the United States was negatively affected on the short run, but stabled on the long-term. Interesting about the flow of capitals is the internal circulation and the fact that the U.S. authorities required additional money to finance the War on Terrorism -- they as such issued Patriot Bonds, which could be purchased by the population and the revenues generated would be used to finance the war

Sectors and industries: probably the most notable effects were felt by the specific industries, such as airlines or insurance. The following lines detail some of the short- and long-term impacts upon the most severely affected domains.

Airlines -- the airline industry had already been facing financial challenges due to a weakening national economy; the federal government strived to support the sector by granting it $15 billion in financial aid, but long-term effects became present when more and more companies declared bankrupt; employees had to deal with the loss of their colleagues and the threats posed on their own lives, while the organizations had to struggle with less trusting, more safety demanding and fewer customers

Insurance -- the loss of lives and properties put intense financial pressure onto the sector which was forced to settle claims of an estimated $40 billion -- these materialized in monetary difficulties in both short- and long-term; also, on the long run, the emergence of a new category of risk -- terrorist risk -- forces insurance companies to develop new sets of products and services, but their experience in this field is virtually inexistent. Few insurance organizations offer coverage against terrorism and since the matter is one of national interest, voices have argued that the federal institution should provide some compensation; the issue has yet to be resolved

Agriculture and food -- on the short run, the industry suffered from not being able to export its products to Canada and Mexico, but the problems were rapidly resolved; on the long-term however, some uncertainties exist

Small businesses -- an estimated 18,000 small businesses were "dislocated, disrupted or destroyed by 9/11. Most were in and around the World Trade Center complex" (Makinen, 2002); specialized aid was offered by the government in the form of loans (Economic Injury Disaster Loans) and federal assistance

2.3 Economic Effects of the War on Terrorism

However the aim of this paper does not revolve around the political effects, it is noteworthy to mention that the violent response of the United States generated some international disputes and tensions in global politics. While some states agreed with the approach decided by President at the time George Bush, other states would have opted for a more peaceful approach. Otherwise put, the seed of these international political conflicts was represented by the War on Terrorism, or the violent response of the Bush Administration to the terrorist attacks on September 11. The national opinions were also diverse, with some groups voicing their concern that the WOT was merely a pretense to invade the rich-in-oil Afghanistan and Iraq (Shah, 2007), whilst others sought refuge, peace, security or even revenge in the endeavor. Regardless of the stand taken by each individual, fact remains that the War on Terror has generated numerous effects upon the national economy.

Gary North (2006) is rather cynical relative to the War on Terror and argues that it is being led by the same organization which ran the unsuccessful war on drugs -- the results are expected to be similar. Placing aside this personal opinion and trying to remain objective, North argues that the WOT could easily materialize in a long-term increase in the trade prices of several commodities, such as crude oil, natural gas, aluminum, steel or silver. Price increases in these commodities are already obvious but the War on Terrorism could easily contribute to a maintenance of this ascendant trend.

Then, another direct result of the WOT upon the American economy could materialize in an increase in the demand for military products and services. As it has been previously mentioned, the focus of the United States authorities could be switched from production to national security, meaning that more resources are allocated to the military and that demand for these types of products continues to grow. On the long run, this will translate into increased revenues for the military products manufacturers and service deliverers. Additionally, the stock prices of these organizations' shares could increase (North). In a nutshell, the economic power of the companies in the military sector could augment in the years to come.

Matthew O'Rourke (2005) looks at the economic effects of the War on Terror from a more military angle. As such, he identifies two direct impacts, materialized in the following:

"An increase in overall military assistance to countries experiencing conflict

The elimination of sanctions on arms exports to these countries" (O'Rourke).

These two effects lead to the conclusion forwarded by North, in the meaning that the power of the American military sector is expected to increase in the long run. Additionally however, these endeavors have been made mostly from federal budgets, meaning that the governmental spending in fighting international terrorism place a growing pressure onto the national system. Money has to be taken from the budgets of education, social services or healthcare and relocated to the military and national defense. This then means that the quality of delivering these services will dramatically decrease in both short and long terms, to culminate with reduced living standards and a decreased quality of life for the American citizens.