Two years ago was the end of the world as we knew it. A true loss of innocence, if you will, as the seemingly impossible became a dust-filled, flame-laden reality. Some 3,000 persons lost their lives, and thousands of families struggle daily to fill the gaps. We continue to rebuild—physically, emotionally, financially, and otherwise. The tragedy of that day will always be with us, and there are no words to adequately describe the psychological and emotional toll the events of September 11, 2001 have taken worldwide. I do want to mention, however, some key aspects of the economics of the events of that day.
One of the biggest problems with 9/11 from an economic perspective was the timing. Two years ago, the US economy was coming down from the highs of one of the most amazing periods of growth in our nation’s history. The stock market was through the stratosphere, and income and employment levels had been setting records on a regular basis. However, there was an ominous buildup of inventory and capacity occurring at the same time. In part, this was due to the vagaries of the Millennium Bug and the rush of purchasing to ensure Y2K compliance. The underlying health of the economy was eroding, and, although we didn’t know it until a data revision several months later, we had already slipped into a mild recession.
Add to the scenario a catastrophic external shock in the form of the terrorist attacks and things began to go downhill in a hurry. Naturally, shutting down the financial markets, transportation networks, and many other critical systems was very harmful to the economy. What came next, however, did at least as much damage.
Just as business activity and equity markets began to show signs of life, the massive wave of corporate scandals struck. As allegations flew, investors began to lose confidence in the information they were receiving related to the companies they were purchasing. Without reliable information, markets falter; we saw the stock markets lose ground at an alarming rate. With that erosion in the values of equities, many Americans lost a substantial portion of their hard-earned nest eggs. Spending was stifled, and the caution lingered.
The uncertainty associated with the ongoing war in Iraq has dampened the nascent recovery. In addition, fears persist that another attack on American soil is only a matter of time. Even more depressing is the very slow rate of new job creation given the stabilization and growth in the economy. Ironically, we have exhibited positive expansion in gross domestic product in every quarter since September 11, a remarkable achievement which is often overlooked in the wake of a sluggish labor market and lingering investment woes.
Nonetheless, airline bookings are up. Security has improved, and efficiency is growing. The burden of overcapacity is shrinking, and businesses are finally gaining ground in terms of profits. Corporate scandals are waning and investors are beginning to trust the information coming out of board rooms and Wall Street. The Federal Reserve Bank has dropped interest rates to historic lows and the fiscal policy has remained generally faithful to an agenda of stimulating the economy. And the so-called jobless recovery cannot persist; just give it a little time, and the jobs will come.
Ask anyone who knows me and they’ll confirm that my natural tendency is to be an optimist, always looking for the hidden elements of the positive in any given set of circumstances. And even though the positives came at far too great a price, we would not be honoring the memory of those who perished if we didn’t also reflect on the glints of a silver lining behind the enormous cloud that is 9/11. The courage displayed that day inspires awe; the resurgence of American pride and patriotism both in the immediate aftermath and now, two years later, is unprecedented in my lifetime. Just as we heal, so does the economy. We will never forget, but the power of the American way of life—including our strong markets, innovation, and productivity—will persevere and prosperity will be sustained on a long-term basis.