WSJ (9/11) Column: The Post-9/11 Economy

Dow Jones Newswires / WSJ ^ | Sept 11, 2006 | Brian S. Wesbury

[jdm]

The terrorists of 9/11 had bigger plans than just killing people and blowing up buildings. They hoped that the attacks would send shock waves through the American financial system and severely harm the U.S. economy. In December 2001, Osama bin Laden said that the attacks had "shaken the throne of America and hit hard the American economy at its heart and its core."

The economy was already in recession on 9/11, and was theoretically vulnerable. At the time of the attacks, industrial production had fallen for 11 consecutive months, new orders for durable goods were down 8.5% from the previous year, retail sales were barely growing and the unemployment rate had jumped by a full point to 4.9%.

For the most part this recession had gone unrecognized. In July 2001, The Wall Street Journal's semiannual survey of 54 economists found only five with forecasts of negative real GDP growth. The attacks changed this quickly.

Roughly two weeks after 9/11, a Bloomberg survey found 22 out of 30 economists predicting recession. Many feared that the direct and indirect costs of security would reduce profits and productivity, consumer spending would slow sharply, deflationary pressures could worsen, and fearful businesses would lower investment, boost inventories and think more local and less global.

But someone forgot to turn out the lights. According to the National Bureau of Economic Research, the recession officially ended in November 2001, just 50 days after 9/11. Retail sales, excluding autos, were higher in October 2001 than they were in August.

SNIP

What a great story: The vibrant U.S. economy takes a tremendous blow and not only remains standing, but rebounds almost immediately.

[misterrob]

Fueled by huge rate cut and a flood of interest free loans by the auto industry. The economy took almost 2 years to get right.

[kenavi]

Fueled by huge rate cut and a flood of interest free loans by the auto industry.

Nothing unusual. The USD stayed within 20 year historical ranges vis a vis foreign currency (e.g. JPY). And surely you are not blaming auto industry woes on 9/11?

[pissant]

It took the wind out of a few sectors, big time. The airlines in particular. But Boeing is now selling jets like hotcakes again.

[Rembrandt]

Anyone who uses that tired old line that "politicians are politicians; the party designation doesn't matter," should read this article. It clarifies the Republican laissez faire strategy vs. the central control tax and spend Dims.

[misterrob]

No, their reaction to it. They whored themselves out using cheap credit to do it rather than ride out a bad quarter or two. They made money on auto loans then decide to give that business up just to dump inventory. Once you get the consumer used to doing business a certain way there's no pulling yourself back.

[wouldntbprudent]

I remember a few weeks after 9/11 sort of rousing myself to go out. I was standing in line at the check-out counter and we began to realize all of us there were rather somber.

One woman said, not being cute, "Well, at least we're all helping to keep the economy on track by shopping."

[kenavi]

There is truth to your observation, that our economy rebounded in large part due to the losses that certain key industries, notably the automobile manufacturers, were willing to sustain. The telephone industry is another example, as they built up vast infrastructures whose cost they will never recoup, and therefore had to write off.

Supplementing the cheap credit and discounted prices from the auto industry, was the run-up in home values which in turn was hyped by the banks who loosened their credit standards to explode the use of (tax-favored) home equity loans, whose proceeds consumers used to buy cars, appliances, and electronics.

So our economic rebound might indeed be resting on a bubble for which the economic reprecussions lie still in our near-future.

That's the nature of capitalism. Everybody is allowed to lose money or make money. It is indeed the world's worst economic system except for every other system that's been invented to date. Somehow we struggle through and keep getting wealthier as a whole.