Slate's Bizbox
chatterbox: Gossip, speculation, and scuttlebutt about politics.

Will Terrorism Resuscitate the U.S. Economy?

Timothy Noah
Posted Wednesday, Sept. 12, 2001, at 6:34 PM ET

The Wall Street Journal and Washington Post both predict in their Sept. 12 news columns that the havoc wrought by yesterday's events may bring on a recession. Chatterbox thinks they couldn't have it more wrong. While the destruction of the World Trade Center, the multiple plane crashes, and the damage to the Pentagon are morally obscene because of the (probably thousands) of deaths and countless injuries they caused, economically the net result of the terrorists' actions is likely to be beneficial to the United States.

"The U.S. economy will go into a recession as a result of the terrorist attack," Sung Won San, chief economist for Wells Fargo & Co., told the Post's John M. Berry and Steven Pearlstein. Why? Consumer confidence will tumble. But what does anxiety about a terrible but decidedly non-monetary tragedy have to do with consumer confidence? In the Journal, Greg Ip and John D. McKinnon explain that by causing an oil spike, the Gulf War depressed consumer confidence and eventually helped cause a recession. Yesterday's oil prices did indeed spike, and "as political tensions rise again in the Mideast" we may see oil prices stay high for some time. Translation: If the United States bombs or invades Afghanistan in order to take out Osama Bin Laden--the increasingly likely mastermind of yesterday's mayhem--then oil-producing nations might get mad and cut back oil production. Could be, but there are an awful lot of "ifs" there. (Certainly the oil-producing Saudis seem unlikely to shed any tears for Bin Laden, who for years has been on the lam from Saudi law enforcement.) Another consumer confidence argument is that people will stay out of airplanes in droves for fear of fatal hijackings. But Chatterbox bets that won't happen. After a traumatic event like this one, people are eager to reassert normal patterns of behavior, even--perhaps especially--if it means suppressing rational fears. Call it a laudable refusal to be bullied, or call it a pathological amnesia, but it's real and it's beneficial to the economy. (Consider, for example, all the people who rebuild their California houses after earthquakes.) As for the stock market, Chatterbox defers to Moneybox columnist Rob Walker's wise judgment that there probably won't be any significant effect.

OK, so the World Trade Center disaster won't harm the economy. Why does Chatterbox think it will benefit the economy? Simple: because we live in a very wealthy nation that responds to horrible disasters by spending large sums of money. In this case, the spending will come both from private insurers and from the federal government's Federal Emergency Management Agency, which over the past decade has established itself as a politically unstoppable source of federal largesse. FEMA helped Southern California's recession-plagued economy to boom after it suffered various natural disasters in the early 1990s. In that instance, of course, California benefited from a Democratic administration's reliance on its votes in the upcoming 1996 election. Since New York is unlikely to go for Bush in 2004, this president will likely be less enthusiastic about rebuilding it. But rebuild it he must if he wants to demonstrate that terrorists can't damage U.S. morale.

Why will the entire U.S. economy benefit, as opposed to just New York's? Because the money will be spent in the nerve center of American finance, which is having a rough time of it these days. Chatterbox believes that the mere presence of construction activity around Wall Street will have a beneficial psychological effect on bankers and brokers. It will also provide a meaningful Keynesian stimulus to a national economy that, let's face it, was tottering on the brink of recession well before Sept. 11. The recession may still come, but the countercyclical spending should help shorten it.

Does this mean we should be glad that terrorists attacked the United States? Of course not. For years the leftist San Francisco economic think tank Redefining Progress has been pointing out that, by boosting spending, disease and natural disasters and assorted other social ills routinely increase the Gross Domestic Product. (See, for example, "If The GDP Is Up, Why Is America Down?" by Clifford Cobb, Ted Halstead, and Jonathan Rowe in the Oct. 1995 Atlantic Monthly.) The answer, obviously, is not to have more disease and natural disasters, but rather to rely less on GDP as an absolute measure of the nation's well-being. Still, Chatterbox won't deny a certain Churchillian satisfaction in believing that in seeking to harm America, terrorists will probably end up in making it more prosperous. They can make us die, and they can make us weep, but they can't make us poor.

Print This ArticlePRINTDiscuss this in The FrayDISCUSSEmail to a FriendE-MAIL
Share on FacebookPost to MySpace!Share with MixxDigg ThisShare with RedditShare with del.icio.usShare with FurlShare with Ma.gnolia.comShare with SphereShare with Stumble Upon
Timothy Noah is a senior writer at Slate.
E-mail Timothy Noah at .
Join the Fray: our reader discussion forum
What did you think of this article?
POST A MESSAGE | READ MESSAGES

Reader Comments From The Fray:


[Notes from the Fray Editor: Heather, here, didn't agree with Chatterbox, and gave good reasons, but concluded "I applaud your confidence, however. Spread it around." WRU looked at how the insurance business might be affected by the events. David P. Lyons said "even if a recession is averted, the real concern underlying most economic analysis, quality of life, will not recover any time soon, and for that we will be poorer."]


If there had been no terrorist attack, then the money we spend rebuilding would have been spent on something else. Then we would have had both no damage to NYC and DC, and that something else. Now we don't get the something else.

Unless, of course, the agencies that hold the money would have just hoarded it, keeping it out of the economy. But then, of course, the value of the dollar would have increased proportional to the amount being hoarded, making us all just slightly better off. So even that scenario doesn't get around the basic point.

--Ananda Gupta

(To reply, click here.)


 First, we are not just teetering on the brink of recession, in many parts of the country--esp. Midwest--we're already in one. Consumer sales, industrial hiring, homes sales--all stagnant. Consumer buying was supposed to keep us going until the economy picked up. Who wants to go on a buying spree now? In any event, the public is going to be so focused on the uncertainty of what's happening next that no one will be interested in "shopping til we drop," buying luxury items like before, renovating houses, starting new businesses, etc.

Second, he ignores the already significant effect of 2-3 days of complete shutdown of the airlines, insurance company losses, the loss of 10-15 percent of the office space in Manhattan due to the WTC collapse, etc...

Finally, any positive effects of a disaster are years away, at the earliest. Rebuild WTC? Is he joking? It'll take 2 years to clean up the site. Who would want to have an office in the world's most famous terrorist magnet? For that matter, who would want to fly on the East coast with a new twin tower on the horizon?

New York is the driveshaft of the American economy and air travel is its lubrication. We won't be hitting on all cylinders for a long time now.

--Jeffrey Sartin

(To reply, click here.)

 (9/13)

Washington Post
The Washington Post
OPINIONS
Sign of the Rove
Tom Toles | John McCain likes to tell a story about the foundation of his political faith.