“We didn’t have time to brood on the situation,” said Ellis, who works for Decision Economics, a consulting firm. “There was very little terror on the stairs.”
Now, as Ellis reflects on the post-attack economic environment, he believes that Americans will not brood at length over this spectacular attack, nor go into an economic shell. Over time, he said, “we will pick up right where we left off.”
More terrorist attacks, especially one causing large numbers of fatalities or using a weapon of mass destruction, obviously could influence such a conclusion, he said. This week, President Bush expressed concern about the possibility of nuclear terrorism, which could also have devastating economic effects.
But Ellis and other analysts believe Americans will learn to live with the fear associated with terrorism and go about their daily business activity, just as the British and Israelis have done over the years.
How U.S. consumers will adjust their economic habits to the new reality of domestic terrorism is a subject economists are just beginning to debate. The economy was already sinking toward recession when the attacks occurred, making it difficult to assess the impact.
Normal, with slower pace
But after hunkering down in the first weeks after Sept. 11, Americans have returned to shopping and traveling, though at a slower pace. Automobile sales are booming as a result of no-interest financing. Retailers are expecting a terrible Christmas, but one survey indicates that a majority of consumers will spend as much on the holiday as they did a year ago.
“I think the U.S. economy will prove to be quite resilient to these events in the longer run,” said Christopher Probyn, chief international economist at Boston’s State Street Bank. A native of Wales, Probyn said the British adapted economically to the terrorist acts perpetrated by the Irish Republican Army.
“Certainly terrorism did have an effect on Northern Ireland’s economy,” he said. “They did clearly suffer. That was the epicenter of the conflict. That was like a war zone. . . . But when the IRA brought the terrorism campaign to the U.K. mainland, I am not convinced it had a big impact on the mainland economy.”
Terrorism’s long-term effect on the U.S. economy is still uncertain. Terrorism is exacting a cost in terms of added expenditures for security, a larger military budget, dwindling budget surpluses and shaken consumer confidence. Even if people adjust, analysts said, the economy’s ability to grow has been curbed by these added costs. The toll will not be known for years.
Economist Gary Shilling, who runs a consulting firm in Springfield, N.J., said Americans will save more and shy away from expensive items. The attacks will usher in deflation, with falling prices and low production, he said. Others see a rebound in economic activity once the recession ends.
Employers accelerated layoffs right after the attacks, causing some analysts to criticize executives for capitalizing on the situation to let more workers go. These additional layoffs have raised worker anxiety and could hurt the economy’s ability to recover from the attacks.
Barry Bosworth, economist at the Brookings Institution, said people tend to adjust to new threats, but he cautioned that it may be more difficult for Americans than it was for Europeans to return to a semblance of normal economic activity.
“Here, the terrorism was a different order of magnitude,” he said. “We have lived in a society where terrorism is so uncommon. In Europe, people were very aware of insecurity and war and disasters. Americans have had a century of no real threat to their lives.”
Yet Americans have gone through great periods of insecurity and threats. The Cuban missile crisis in 1962 caused fears of nuclear war. In the 1950s, people built bomb shelters for fear of a nuclear attack, but over time they adapted.
Few studies exist on terrorism’s effect on a nation’s economic life. A paper by Alberto Abadie, a Harvard University professor, and Javier Gardeazabal, economics professor at the University of the Basque Country in Bilbao, Spain, suggested that 20 years of Basque terrorism reduced per capita economic growth in that region 10 percent.
Abadie, a native of the Basque region, said people there grew more accustomed to the violence over time but that the long-term economic costs were substantial as the terrorists focused on kidnappings of entrepreneurs. In the U.S., however, the terrorist attacks have been directed at the general population.
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David Wyss, chief economist at Standard & Poor’s in New York, lived in London and said he grew accustomed to a higher level of terrorism and security. “It’s quite possible to have a pretty decent economy and have terrorist attacks,” he said. “People have an amazing ability to get used to anything.”
Spending survey
A survey sponsored by the Credit Union National Association and the Consumer Federation of America said people may not cut back as much on their Christmas spending as is widely believed.
The new survey, conducted by Opinion Research Corporation International in late October, showed 57 percent of those surveyed plan to spend as much on Christmas as they did last year. An additional 28 percent said they planned to spend less, compared with 24 percent a year earlier. And 13 percent said they planned to spend more, compared with 18 percent a year ago.
Bill Hampel, chief economist for the credit union group, said the findings were surprising. The cutbacks were not nearly as large as might be expected, he said.
“I think people’s reactions to terrorism are fairly complicated,” Hampel said. “I think they are singling out their holiday spending as something they don’t want to let terrorists violate. They might put off a new kitchen, buying a car or a lot of major purchases, but they are saying, `We are going to have a holiday this year.'”