NCPA - National Center for Policy Analysis

Economic Effects of Terrorist Attack

September 14, 2001

The terrorist attack at the World Trade Center threatens to damage American confidence enough to trigger a full-blown recession. The economic recovery of the United States originally expected in the latter half of 2001 is now expected to be delayed for at least six additional months -- partly due to the fact that New York City, and specifically the World Trade Center complex, served as the center of the financial world.

  • The highest cost of the attack is likely to be the loss of considerable human capital -- the towers held some of the top players in the financial world, including executives from Allstate, Bank of America, Delta Airlines, Oppenheimer Funds, Sun Microsystems and over 400 others.
  • The productivity of workers in N.Y.'s financial district has been shown to be about twice the average American worker's.
  • The closure of New York complicates the financial picture, since the New York exchanges handle $90 billion in trade daily.
  • With most of the nation shut down for a day, the loss could translate into a one percentage point hit on gross domestic product.

An extended U.S. downturn, probably including at least one quarter of recession, is almost certain. But, according to experts, quick action from governments in Europe, Japan and at home, combined with America's underlying economic strength and stability, should lead to an eventual resurgence.

  • Within a day of the tragedies, Japanese and European central banks together released $80 billion in additional funds to ensure sufficient credit (liquidity).
  • The quick action stemmed losses suffered by European exchanges on Wednesday and nudged the dollar higher after Tuesday's plunge.
  • Similarly, the Federal Reserve has injected $38.25 billion -- 10 times the daily average -- into the banking system.

New York City may be a global center, but it is not the only economic hub in America's decentralized economy. Baltimore, Boston, Chicago, Dallas, Houston, Los Angeles, Miami Philadelphia, San Francisco and St. Louis have their own independent infrastructures and economic bases.

Sources: "U.S. Economy Will Rebound After Hit," Stratfor Online Intelligence, September 13, 2001, and Editorial, "Capital Restoration," Investor's Business Daily, September 13, 2001.

 

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