America's Economic
Crash Had Little to do with September 11
"At
most, the attacks may have delayed the end of the recession by a month or two. …
America’s future is more severely shaken when the employees of a crashing
investment bank cross Wall Street than when aircraft zoom into skyscrapers and
kill 3,000 people. It’s an absurd world."
President Obama addresses a joint session of the U.S. Congress to talk about putting Americans back to work. Few believe he'll get his program passed intact.
The conjecture has persisted
since the initial hours after the terror attack: Terror plunged the American
economy into recession. And by the way: The whole mess over massive government
debt essentially began after September 11th. Because the Federal Reserve
panicked and lowered interest rates, thus encouraging people go into debt. So
they say.
It almost sounds reasonable. But
it cannot be properly demonstrated. On the contrary. Rather, ten years later, the
suspicion imposes itself that September 11th left neither a direct nor indirect
mark on the U.S. or world economy. If anything, George W. Bush, who was
president at the time, made sure of that with his wars of retribution - although
even that wasn’t nearly as expensive as the financial crisis of 2007.
Sure, there were more or less
legitimate concerns after September 11th. The price of oil shot up only once. U.S.
stock markets remained closed, and in Europe, stock prices plummeted. There
were fears that banks and insurance companies would collapse; or that supply
shortages would be exacerbated with companies halting production because of
terrorism, with no planes flying and airlines going broke; or that U.S.
consumers would panic and stop buying. Estimates on the high cost of increased
security measures were soon circulating - and how this would put the brakes on
globalization. Posted by WORLDMEETS.US
In the first few weeks after
September 11th, key indicators like the Purchasing
Managers Index did in fact slump. Unemployment claims shot up by almost 100,000,
and U.S. industries received significantly fewer orders. But the shock was
brief. In December, unemployment claims were already at pre-crisis levels. The
cost of direct damage was later estimated at $20 billion, which was huge for
New York, but in terms of U.S. economic performance, accounted for only 0.2
percent of total GDP - not nearly enough to bring down the whole economy.
In reality, the U.S. economy
was already in recession before the attacks - a recession that resulted from
the collapse of the New Economy. At most, the attacks may have delayed the end
of the recession by a month or two. According to official assessments, the
recovery had already begun in November 2001.
Norwegians would have come away better
What didn’t occur were more
failures of large banks, as the government - by committing funds - had prepared
for that possibility. In the meantime, oil prices fell because of recession
fears, which in turn shored up the economy. And U.S. consumers quickly regained
confidence because additional terrorist attacks failed to materialize. In the
long term, it seems that not even globalization suffered as a result of
stricter security controls. In the six years after 2001, global trade rose at
the same rate as it did six years previously - by just over 50 percent. There
is no visible fracture.
In addition, according to
analyses by Stanford economist Nick
Bloom, there was no careless overreaction on the part of the U.S. Federal
Reserve: “The FED provided moderate assistance, which in the face of temporary
shocks proved to be absolutely appropriate.” The fact that interest rates were
unusually low went unnoticed until long after the terrorist attacks - because
of global inflation fears circulating at the time, not because of the 9/11
attacks. That can hardly serve as an explanation for the subsequent housing
bubble. The housing boom began before 9/11.
Was Osama bin Laden responsible for the recession and housing
bubbles? That is rather a legend. But it’s no myth how the U.S. government
reacted to the terror attacks: With two wars, which according to the
administration at the time were supposed to finance themselves, but which so
far have cost between $1 and 5 trillion, according to Nobel Prize laureate Joseph Stiglitz.
Since the wars began, America’s
defense spending has gone up from roughly $300 billion to almost $800 billion; if
the U.S. had remained at 1999 levels, from 2001 to 2011 it would have spent a
total of approximately $5.8 trillion less. Since 2007, the additional defense
expenditures also reduced the government’s margin for responding to the
financial crisis. Posted by WORLDMEETS.US
Another possible side-effect
of this campaign of retaliation: Prior to 2001, oil prices always fluctuated
between $10 and $30 a barrel. Since then, prices have increased many fold to
previously unthinkable levels. Perhaps this is no coincidence: Because of the
wars, much of the Middle East’s production capacity was reduced. This results
in higher prices. All this was less a consequence of the attacks themselves as
it was a consequence of the unnecessary reaction to them. One could also express
it this way: It is likely that the Norwegians would have chosen not to avenge
the terrorists, which not only would have done a lot less harm than Bush’s U.S.
military, it would have cost them a lot less and left them much better off
economically than the Americans.
A disturbing difference
But for a supposedly obvious conclusion,
even this finding is insufficient: That America's current debt problems are in
some way connected to what happened on September 11th.
In the six years from 2001 to
2007, U.S. government debt rose by nearly $3.2 trillion, so in the four years since
the financial crisis alone - it more than doubled. Which means: Compared to
what the bank crash has cost since 2007, even Bush’s military campaigns were (one
could almost say) cheap. If the Americans had lowered government debt annually
by 2.5 percent of GDP, the debt to GDP ratio would have been at 50 percent
instead of 62 percent when the financial crisis broke. Today, in the fifth year
of the crisis, the ratio would have been at 90 percent rather than 100 percent.
Beautiful. Measured against the damage done by the banking disaster, it doesn’t
make such a huge difference.
Which is disturbingly creepy.
America’s future is more severely shaken when the employees of a crashing
investment bank cross Wall Street than when aircraft zoom into skyscrapers and
kill 3000 people. It’s an absurd world.
