The Economic Effects of 9/11: A Retrospective Assessment (CRS Report for Congress)
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| Release Date |
Sept. 27, 2002 |
| Report Number |
RL31617 |
| Report Type |
Report |
| Authors |
Gail Makinen, Government and Finance Division |
| Source Agency |
Congressional Research Service |
Summary:
The tragedy of September 11, 2001 was so sudden and devastating that it may be difficult at this
point in time to write dispassionately and objectively about its effects on the U.S. economy. This
retrospective review will attempt such an undertaking. The loss of lives and property was not large
enough to have had a measurable effect on the productive capacity of the United States even though
it had a very significant localized effect on New York City and, to a lesser degree, on the greater
Washington, D.C. area. Thus, for the tragedy to affect the economy it would have had to have
affected the price of an important input, such as energy, or had an adverse effect on aggregate
demand via such mechanisms as consumer and business confidence, a financial panic or liquidity
crisis, or an international run on the dollar.
It was initially thought that aggregate demand was seriously affected, for while the existing data
showed that GDP growth was low in the first half of 2001, data published in October showed that
GDP had contracted during the 3rd quarter. This led to the claim that "The terrorist attacks pushed
a weak economy over the edge into an outright recession." We now know, based on revised data,
this is not so. At the time the economy was in its third consecutive quarter of contraction; positive
growth resumed in the 4th quarter. This would suggest that any effects from September 11 on
demand were short lived. While this may be true, several events took place before, on, and shortly
after September 11 that made recovery either more rapid than it might have been or made it possible
to take place. First, the Federal Reserve had eased credit during the first half of 2001 to stimulate
aggregate demand. The economy responds to policy changes with a lag in time. Thus, the public
response may have been felt in the 4th quarter giving the appearance that the tragedy had only a
limited effect. Second, the Federal Reserve on and immediately after September 11 took appropriate
action to avert a financial panic and liquidity shortage. This was supplemented by support from
foreign central banks to shore up the dollar in world markets and limited the contagion from
spreading to other national economies. Nevertheless, U.S. trade with other countries, especially
Canada, was disrupted. While oil prices spiked briefly, they quickly returned to their pre-September
11 levels.
Thus, it can be argued, timely action contained the short run economic effects of September
11 on the overall economy. Over the longer run the tragedy will adversely affect U.S. productivity
growth because resources are being and will be used to ensure the security of production,
distribution, finance, and communication.
This report is retrospective in nature and will not be updated.
