12 September 2012, 14:12

Measuring 9/11 attacks drain on US economy

Measuring 9/11 attacks drain on US economy
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In light of the 11th anniversary of the September, 11, 2001 terror attacks we’re taking a look back at the US economy and how it was impacted by that event. My guests are Frederick Joutz, a Professor of Economics and Co-director of the Research Program on Forecasting at George Washington University, and Lawrence White, a Professor of Economics in Leonard N. Stern School of Business at NYU.

The University of Southern California’s Terrorism Research Center put out the study back in 2010 that measured the economic impact of the September, 11th attacks saying the attacks cost the economy 35 billion to 109 billion which were much lower numbers than original estimates which had ranged as high as 500 billion. Is this study’s result considered accurate in its measurement of how much 9/11 impact on the economy was? Frederick Joutz?

I think it really depends upon the perception of how one’s measuring this in terms of horizon - in the short run or in the long run. My understanding of the created report is that that was the initial impacts on the economy in the short run.

But there’re still long-term effects, right?

That’s correct. And they’re probably far larger than that.

Lawrence White, what were those long-term effects being? Could you guess on how much the 9/11 impacted on the economy?

The way I think about it is the attacks really, in a sense, increased the amount of fraction in the US economy. We use more of our resources, more things related to security that could otherwise be used for goods and services – sweaters or cars or computers or computer software – instead of using our resources in a more productive way. If we didn’t have all this terrorism fears, we wouldn’t devote these resources to more security guards, more kind that you have to spend at the airports going through the homeland security, check points, as well as the employment of those people – they may show up as a positive component of the GDP, because it’s employing people and you’ve got government and the private sector spending money on it. But it’s not a productive use of our resources as compared with the way they could have been used if the terrorism wasn’t there. I see that as the one major cause. The other is just it heightened tensions vis-à-vis Arab, Middle-Eastern countries more generally and that always means higher prices for petroleum, since we’ve been a net importing country of petroleum. That means a bigger net drain on the US economy in that direction. Those are both I think substantial points.

To that first point of security, I believe, we saw more resources put towards homeland security, national defense, even in the private sector.

Nowadays it’s always impossible to go into an office building in Washington DC or in NY City or in any major city – you have to stop at a guard desk. That’s been true for government now for 20 or 30 years, but the private sector now is employing more security than used to be the case. And that’s just extra-cause in a terrorist-oriented world. Presumably, it brings benefits. But, gee, if we didn’t have the terrorism – we wouldn’t need to spend so much money, in the first place, and we could have devoted resources to something else that would be more productive.

Frederick Joutz, can we also say that one of the indirect effects from the attacks were the wars – the war in Afghanistan - as well as we talked about the homeland security spending. But can you also not point to the war in Afghanistan as a major source of spending there?

The direct outcome from 9/11 was involvement even today in Afghanistan and there the defense budgets that we can allocate to Afghanistan and, subsequently, to Iraq are about 1.7 trillion higher than otherwise would have been – that was what we spent so far. Unfortunately, we have a lot of Americans who come back with disabilities. And if we look at the impact of veterans there, we’ll be talking about other 700-800 billion dollars of veterans’ care. And we changed how we would spend absent 9/11 and in this case all of this governments spending has not been associated with any taxes related to funding the war or anything like that. And I think if we as citizens had the choice to think about: are we going to pay for this today? or are we going to make our children and grandchildren pay for it? It might have been a different decision here.

I agree. I agree with that.

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