The economic legacy of 9/11

Kai Ryssdal looks out at the National September 11 Memorial & Museum at the World Trade Center site in New York City.

Kai Ryssdal: This Sunday, as you know, is September 11th. It's the 10th since people started paying attention to that particular date.

Newsreel: I'm sorry. I am going to interrupt you right now. We have what looks to be a very serious... Is that the World Trade Tower? The Capitol has been evacuated, just about every the federal building in the city... Oh my god. Oh my god... We're not exactly sure what happened, but it was another explosion. What the people on the scene don't realize is that one of the Twin Towers collapsed. One of the two towers is gone. Both of the Twin Towers of the World Trade Center have collapsed.

Bill Thompson: My name is Bill Thompson.I'm chairman of the Battery Park City Authority.

Battery Park's the neighborhood right around the World Trade Center -- lots of big businesses, thousands of residents. Bill Thompson was -- for most of the past decade -- the New York Comptroller, the guy responsible for the city's finances.

Ryssdal: Look over shoulder and tell me what you see over there.

Thompson: I'm looking at growth. I'm looking at the new World Trade Center, which is going up. If you look across the street this is Lower Manhattan coming back at its strongest.

Ryssdal: What do you think of the new building?

Thompson: It's gorgeous.

It's hard to draw a straight line from what happened 10 years ago on this spot to where we are in the economy today. People will tell you it can't be done -- that adding up the lost lives and the destroyed property and the emotional impact just doesn't add up. And maybe that's true. But one thing you can prove is this: It's been a rough 10 years.

Nick Bloom: 9/11 was really a watershed era.

Nick Bloom is an associate professor of economics at Stanford University. He studies, quite simply, uncertainty.

Bloom: First of all, there was obviously a huge uncertainty about terrorism. Never before had there been anything on this scale. And the policy response was widely debated both in the U.S. and of course abroad. I was actually living in the U.K. at the time and it generated just globally tremendous uncertainty. And the world doesn't really seem to have recovered since then.

Bloom charts what he calls "policy-related economic uncertainty" -- he literally charts it. You can see 'em here.

Bloom: Throughout the '90s uncertainty was pretty low in the U.S. Policy was relatively stable, you know where you stood, you knew how things were going to progress. Until 9/11. And 9/11/2001 there's a big spike, it stays high.

Because of Afghanistan and then Iraq. Things steady for for a bit around 2005-2006, and then kinda go haywire.

Bloom: There's the credit crunch, the Obama election, the euro crisis all the way through to the mid-terms in 2010.

And straight on through to the debt limit fight this summer. Bloom's methodology was basic -- searches for the word "uncertainty" in news reports from the last 10 years. And in the minutes from two decades worth of Fed meetings.

Bloom: The Federal Reserve -- the committee chaired by Greenspan and more recently by Bernanke -- often discuss economic uncertainty and they discussed very heavily around 9/11. You see the minutes are peppered with the statement "economic uncertainty," "worried about uncertainty."

Thompson: We're only a few blocks away from Wall Street, and the New York Stock Exchange here.

For Bill Thompson that day, the uncertainty was about the very future of New York.

Thompson: It still was, what's gonna happen to New York City? And you knew you were going to be part of an effort to come back, but what were we going to do? The financial industry in New York, there was a big concern, would they stay here? Everything had been paralyzed. Everything was stopped.

Bob McTeer: We were afraid that whole system would seize up. That's a term that Alan Greenspan used a lot back then. We were afraid that banks would simply stop trading with each other.

Bob McTeer was the head of the Federal Reserve Bank of Dallas 10 years ago. That fear he was talking about helps explains why the Federal Reserve issued only one public statement on September 11th.

McTeer: The Fed stands ready to lend to the banking system as needed, something along those lines.

So it did. It flooded the system with cash and cut interest rates -- a lot -- over the next couple of years.

McTeer: Later on, of course, people said the Fed was too easy during this period and that it probably helped hype up the housing market too much, but they forget the conditions that existed back then. Chairman Greenspan was seriously worried about the possibility of deflation and it looked like we might slip into a new recession, a double dip.

At the White House, the worry was terrorism, not recession.

Mitch Daniels: It colored everything, of course.

Mitch Daniels is the governor of Indiana today. Ten years ago he was the director of the Office of Management and Budget under George W. Bush.

Daniels: There was a sense -- perhaps inflated -- of risk around work and I guess around the whole country there for a while. And then the whole question of what we now call homeland security and what it ought to be, how big it ought to be, how much it ought to cost. These were decisions that we're still living with today.

Ohio State political scientist John Mueller calls that the reaction cost.

John Mueller: Yes, it includes the Department of Homeland Security, the Department of Justice, the FBI of course, and military spending within the country to protect bases. It includes a huge amount of police and intelligence costs within the United States. There's also state and local government spending. Then there's additional things such as waiting times in airports, which cost money. And even if you don't include things like the wars in Iraq and Afghanistan, the cost of counter-terrorism in the United States over the 10 year period accumulates to over a trillion dollars.

Most would include the cost of the war in Afghanistan. A few might add Iraq, although reasonable people disagree about whether that war would have happened even without September 11th.

Harvard professor Linda Bilmes co-wrote a book called "The Three Trillion Dollar War," about the costs of Iraq.

Linda Bilmes: My own sense is that one of the reasons that President Bush went to war in March 2003 is that he and his team and the country was very jittery. I think that after 9/11, he felt that the risk of what might happen if we didn't invade Iraq was bigger than if we did. I suspect that if we had not been in that jittery environment cooler heads would have prevailed.

Maybe. Maybe not. But Bilmes says there is another thing to consider when you're talking about the economic legacy of September 11th.

Bilmes: The fact is that we have now spent trillions of dollars in Iraq and Afghanistan, all of which has been borrowed. Now the consequences of that have been, of course, an enormous run-up in our national debt -- which has been the subject of so much attention now -- and the fact that we owe interest that we are going to have to repay for those debts.

There's probably never going to be a way to calculate the true costs of September 11th. We talked to a lot of people for this story -- economists, politicians, analysts, journalists -- looking for that defining piece of tape about September 11th and its economic legacy.

We finally got it from Brock Blomberg, an economist at Claremont McKenna University.

Brock Blomberg: Our generation asks, "What were you doing where the Twin Towers fell," in the same way that a generation ago we asked, "What were you doing when Kennedy was shot?" So to me, I think that impact is so much greater than any economic impact -- how it affects our soul. And that's funny for an economist to use that word, but to me, I think that's what I think of when I think of September 11th.


Ryssdal: Our coverage of the economic legacy of September 11th continues on the program tomorrow, and you can check out our interactive feature, where you can check out those charts from economist Nick Bloom about economic and poltical uncertaintly over the past 20 years.

About the author

Kai Ryssdal is the host and senior editor of Marketplace, public radio’s program on business and the economy.

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