The Wall Street Journal and Washington Post both predict in their Sept. 12 news columns that the havoc wrought by yesterday’s events may bring on a recession. Chatterbox thinks they couldn’t have it more wrong. While the destruction of the World Trade Center, the multiple plane crashes, and the damage to the Pentagon are morally obscene because of the (probably thousands) of deaths and countless injuries they caused, economically the net result of the terrorists’ actions is likely to be beneficial to the United States.
“The U.S. economy will go into a recession as a result of the terrorist attack,” Sung Won San, chief economist for Wells Fargo & Co., told the Post’s John M. Berry and Steven Pearlstein. Why? Consumer confidence will tumble. But what does anxiety about a terrible but decidedly non-monetary tragedy have to do with consumer confidence? In the Journal, Greg Ip and John D. McKinnon explain that by causing an oil spike, the Gulf War depressed consumer confidence and eventually helped cause a recession. Yesterday’s oil prices did indeed spike, and “as political tensions rise again in the Mideast” we may see oil prices stay high for some time. Translation: If the United States bombs or invades Afghanistan in order to take out Osama Bin Laden–the increasingly likely mastermind of yesterday’s mayhem–then oil-producing nations might get mad and cut back oil production. Could be, but there are an awful lot of “ifs” there. (Certainly the oil-producing Saudis seem unlikely to shed any tears for Bin Laden, who for years has been on the lam from Saudi law enforcement.) Another consumer confidence argument is that people will stay out of airplanes in droves for fear of fatal hijackings. But Chatterbox bets that won’t happen. After a traumatic event like this one, people are eager to reassert normal patterns of behavior, even–perhaps especially–if it means suppressing rational fears. Call it a laudable refusal to be bullied, or call it a pathological amnesia, but it’s real and it’s beneficial to the economy. (Consider, for example, all the people who rebuild their California houses after earthquakes.) As for the stock market, Chatterbox defers to Moneybox columnist Rob Walker’s wise judgment that there probably won’t be any significant effect.
OK, so the World Trade Center disaster won’t harm the economy. Why does Chatterbox think it will benefit the economy? Simple: because we live in a very wealthy nation that responds to horrible disasters by spending large sums of money. In this case, the spending will come both from private insurers and from the federal government’s Federal Emergency Management Agency, which over the past decade has established itself as a politically unstoppable source of federal largesse. FEMA helped Southern California’s recession-plagued economy to boom after it suffered various natural disasters in the early 1990s. In that instance, of course, California benefited from a Democratic administration’s reliance on its votes in the upcoming 1996 election. Since New York is unlikely to go for Bush in 2004, this president will likely be less enthusiastic about rebuilding it. But rebuild it he must if he wants to demonstrate that terrorists can’t damage U.S. morale.
Why will the entire U.S. economy benefit, as opposed to just New York’s? Because the money will be spent in the nerve center of American finance, which is having a rough time of it these days. Chatterbox believes that the mere presence of construction activity around Wall Street will have a beneficial psychological effect on bankers and brokers. It will also provide a meaningful Keynesian stimulus to a national economy that, let’s face it, was tottering on the brink of recession well before Sept. 11. The recession may still come, but the countercyclical spending should help shorten it.
Does this mean we should be glad that terrorists attacked the United States? Of course not. For years the leftist San Francisco economic think tank Redefining Progress has been pointing out that, by boosting spending, disease and natural disasters and assorted other social ills routinely increase the Gross Domestic Product. (See, for example, “If The GDP Is Up, Why Is America Down?” by Clifford Cobb, Ted Halstead, and Jonathan Rowe in the Oct. 1995 AtlanticMonthly.) The answer, obviously, is not to have more disease and natural disasters, but rather to rely less on GDP as an absolute measure of the nation’s well-being. Still, Chatterbox won’t deny a certain Churchillian satisfaction in believing that in seeking to harm America, terrorists will probably end up in making it more prosperous. They can make us die, and they can make us weep, but they can’t make us poor.