The economy after 9/11

American Economy After September 11, 2001

This paper will explore the issue of the American economy after the September 11, 2001 terrorist attacks on the World Trade Center and the Pentagon in Washington, D.C. Essentially, these attacks on American soil shattered an innocence that existed within the American population that we were untouchable. The attacks shattered the notion nothing could touch us in our own country and set into a motion a series of events that would directly affect the health of the American economy. Many will argue that the American economy was already suffering through a recession. Many will argue that the September 11, 2001 attacks on America did not hurt the economy but in a sense, rescued it from further damage. This paper's main objective is to explore the multi-layers of this situation. First, this paper will look at exactly the health of the American economy prior to the attacks. Second, this paper will examine how the attacks affected the American economy. This includes looking at both the positive and negative aspects of the attacks' fallout. Is it possible that such a tragic, terrible event can be a positive? Is it possible that the resulting wars in Afghanistan and Iraq have proven to be economic stimulus for the country's growth? This paper will attempt to look at the many sides of this issue and examine how this event influences the country's economy today.

American Economy Prior to September 11, 2001

Over the last fifteen years, the country much like a business has gone through a restructurizing. The focus has changed from manufacturing and governments sectors to that of a strong service sector. Overall job growth has steady during the years leading up to the attacks with job growth on the rise despite two shallow recessions and a two-decades long boom. Surprisingly consumption and government spending remained strong and steady during this time leading up to the attacks. This may be the main reason why the economy was not as hard hit by the shock of the attacks but instead remained flexible to uncertainty and change. Maybe it was due this change in focus on the service industry, which in turn created new products for Americans to buy. James Orr writes, "bouts of restructuring naturally accompany periods of economic instability" (1). It is part of the expand and contract behavior the economy cycles through continuously. What can be hard to understand to the layperson is that the economy is constantly fluctuating regardless of external factors. During the 1990s many Americans became complacent and comfortable because of the service sector's expansion. This allowed for many the flexibility to change jobs and take more risks in careers and lifestyle changes. Orr comments that although displacement rates of white-collar workers seemed high "this percentage is not completely out of step with long-term restructuring patterns" (2). In other words, this trend is reflective of the economy living out its normal cycle of behavior. One can argue the terrorists were clever in that they studied the cyclical nature of the American economy before attacking to hit the United Stated while it was a natural low point. Still many economists and finance experts will argue the shock of the attacks caused damage to the American economy when it is my belief that the attacks changed the public perception of how the economy behaves. The attacks also played a role in how Americans perceived commerce in those first days and the attacks changed spending habits and consumer confidence but I believe these trends are not permanent within the economy's behavior. Much like the United States as a nation, the economy also needed time to adjust to the new reality of a post 9/11 world. Still as it is discussed in the 9/11 Commission's report, this new reality was actually a long time coming. Had the American public known of a terrorist threat, would this knowledge decreased the shock and therefore the adjustment period of time for the economic cycle? It is difficult to tell.

American Economy After September 11, 2001

Over the last five years, the American economy has weathered more than just the 9/11 Attacks. While this national tragic was a terrible catastrophic event, it is not only the event directly affect the economic cycle as an apparent downturn. In fact as R. Glenn Hubbard comments, "these events should have precipitated a significant and prolonged downturn" (1). Instead other events like corporate accounting scandals; geopolitical risks and war have deeply affected the economy as well. If anything, Hubbard argues, the terrorist attacks have strengthened the Bush Administration's policies toward economic growth not only a home but also in the international arena. "American leadership in international economic policy requires a strong economy at home and the encouragement of pro-growth economic policy around the world" (Hubbard, 2004, 1). Mainly it has been the flexibility of the private sector and Bush's policy toward combating the set forces of the economy that has seen the United States through the period of uncertainty caused by the attacks. Another factor, which has contributed to the public's perception of a weakened economy due to September 11th, is the rate of growth and strong productivity. This factor has raised the standards of living while the employment has remained steady. In this way, such rapid growth can be a deterrent. This, however has not influenced the country's overall Lee Price points out, "the economy was thrown for a loop by the attacks but the net effect on total GDP today is negligible and may well be positive" (1). Many retail sales, travel and financial markets may have been put on hold due to the attacks but "moved back on the strong growth trend that preceded September 11" (Price, 2003, 1). Americans also have this perception that the economy suffered because the stock market closed and then took a nosedive after the attacks. This was just a part of the short-term adjustment period. The stock market later soared past its September 10 levels as other sectors gained strength as all of America adjusted. Price attributes the American economy's ability to adjust and gain strength so quickly after the attacks to two factors. First, the economy was stimulated because of a by-product the attacks. The attacks may have sent Americans into a period of fear, uncertainty and paranoia but it also created an immediate demand for security. Cost expenditures for security and security services exploded not only for the government sector but also the private sector as well. Americans needed to feel safe in those months following the attacks and therefore, a whole new niche of service resulted. As a result Price surmises, "output is not lower today because of 9/11 and it may well be higher than it otherwise would have been" (1). Second, war and leadership caused a level of patriotism not seen since the Second War World. In the days after the attacks, President Bush asked the American people to continue their lives and go about daily business. This in turn along with the promise of the war on terror as an act of revenge gave Americans reason to continue spending. This allowed the impact of the attacks to face as America became united (Price, 2003, 2).

Consumer Confidence and Spending Trends

Still many Americans would argue that due to consumer confidence being low in the market place and therefore having a direct influence on commerce that the economy is weak even today. In the days after the attacks, consumers were uncertain of the future. Due to President Bush's plea and a need to move on, consumer confidence and spending is growing stronger. However, the average American has less buying power than he or she did in the late 1990s. This is due to increased costs and standards of living while annual costs of living raises have not increased exponentially to meet demand and grow for the retail markets. Also rising energy costs and America's reliance on the Mid-East for petroleum products have made it difficult for the average family to spend money on durable goods. In this respect the American consumer has changed. The September 11th attacks may have just accelerated this trend. Early on Wal-Mart saw the need to help its customers adjust to this economic trend and therefore changed its strategy.

Wal-Mart also adjusted itself to the economic environment in order to remain competitive. After 9/11 Wal-Mart recognized a change in consumer spending at their stores and adjusted prices to reflect this trend. Wal-mart understood "the consumer need of a breather at the start of s long-awaited consumer spending recession" (Delong, 2003). What did business philosophy, model for business success over the long-range and subsequent adjustments due to consumer trends amount to for Wal-Mart? This last Christmas seasonal shopping remained promising when compared to 2003 but still did not meet analysts' forecasts. When in this challenging economic state, Wal-Mart to be successful because of "a late surge in shopping and use of gift cards -- which estimated to make up 8% of holiday sales this year -- after Christmas resulted in solid, if unspectacular, sales" (Shoppers, 2005).