Article25 September 2001 The terrified economy?
by Daniel Ben-Ami
In the two weeks since the terrorist attacks on New York's World Trade Center on 11 September, claims about its economic impact have got way out of proportion.
If much of the media coverage is to be believed, the impact of the attack goes beyond terrible casualties and physical destruction - to plummeting share prices, rising unemployment, redundancies in the airline business, declining tourism, and even a shopping downturn in London.
But this discussion fails to distinguish between the direct economic impact of the attack and the anxious mood that already existed long before 11 September. In a more confident era, the reverberations of the attack would not be nearly as great. The attacks speeded up a process that was already underway, rather than creating something new.
The outpouring of grief that followed the loss of more than 6000 lives has clouded the judgement of many - with some feeling that the economic damage should in some way be commensurate with the general sense of shock. But in such an emotionally charged environment it is all the more important to take a sober, systematic look at the real economic impact of the destruction.
Direct impact
The attack on the World Trade Center destroyed not only the twin towers, but damaged many buildings in the surrounding area of Lower Manhattan - and while estimates of the cost of damage are still imprecise, there is no doubt that it will run into billions of dollars.
The estimates vary considerably. US Treasury secretary Paul O'Neill told Business Week that it could be between $10billion (£6.8billion) and $20billion, or possibly even more (1). This would make it broadly comparable to Hurricane Andrew that hit Florida in 1992 - the most expensive natural disaster the USA has experienced.
Many insurance experts put the likely value of claims as a result of the attacks much higher. A commonly quoted figure is $30billion, while the UK Sunday Times quoted an expert who thought the damage could cost as much as $100billion (2). But this was a broadly defined estimate that included the cost of the aircraft, life insurance payouts, dealing with psychological trauma, business interruption, and compensation payments.
What most commentators fail to do, however, is set the estimates of damage costs against the huge size of the US economy. According to the latest figures, the GDP of the USA - the value of its output in one year alone - is $10.2trillion. In short, even the highest estimates of the cost of the attacks' impact still account for less than one percent of US economic output in a single year.
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----- Original Message ----- From: Yoshie Furuhashi <furuhashi.1 at osu.edu> To: <professors_for_peace at yahoogroups.com> Sent: Sunday, September 30, 2001 3:22 PM Subject: The Fear Economy (by Paul Krugman)