Published: Sep 11, 2002 in Knowledge@Emory
Emory University economists and other faculty experts say that while they are still unsure about the ultimate impact last year’s terrorist attacks will have on the economy, some predict that the Bush Administration’s tendency toward unilateral action may prove to be the gravest legacy of September 11.
“I tend to think that the full impact of any shock like this would not show up instantaneously or any time soon,” says Zheng Liu, an Emory economics professor specializing in monetary policy. “One year is a long time — still, usually it takes quite a while to transmit [a significant change] through the entire economy.”
For example, when interest rates are raised or lowered, he says, it generally takes up to a year for the effects of that change to filter throughout the economy. The reason, he says, is that there’s typically a lag as costs are passed along from one company in the course of producing and selling a product.
One clear casualty of Sept. 11 was the stock market. “I think the biggest impact of September 11 was the downward pressure on the stock market,” says Jagdish Sheth, a professor of marketing at Emory’s Goizueta Business School. Stocks were already sliding, but investor sentiment declined even more in the period of uncertainty that followed the attacks, he says.
At the same time, Sheth notes, corporations decided to hold on to more cash rather than place it in stocks or new capital investments. Many companies also decided to take advantage of this climate as an opportunity to restructure divisions and lay off employees.
This fear of the future had very real effects on the energy market as well. Ujjayant Chakravorty, a professor of economics who specializes in energy, says that he estimates the price of oil, now hovering around $30 a barrel, would be $6 to $7 cheaper this year if buyers weren’t concerned about the prospect of a war with Iraq, a major global oil supplier.
On the bright side, the price of oil might have been higher still, he says, if demand for jet fuel had not gone down after September 11. And Saudi Arabia is apparently anxious to stay in our good books. Fifteen of 19 hijackers were from Saudi Arabia, and this fact may be making the Saudis eager to show their support for the U.S., Chakravorty reasons. “They might try extra-hard to gain brownie points with the American public and the Administration,” he says. “You haven’t heard about OPEC price increases in recent times, and it’s quite possible that the Saudis would be extra-active to prove that they’re on the side of the U.S.”
One industry that seems dramatically affected by the attacks is a major consumer of that fuel, the airlines. Between the government shutdown of national airspace in the first few days following the attacks and consumer jitters once planes were flying again, the fall of 2001 emerged as a horrendous time for the industry. In 2000, the industry earned $2.6 billion in net income; by the end of 2001, it had lost $7.8 billion, according to U.S. Department of Transportation figures.
“It’s pretty clear that people overreacted,” says Paul Rubin, a professor of economics and law at Emory. “[September 11] was a terrible thing, but in terms of the magnitude of risk, terrorism is still a trivial risk. People were driving instead of flying when flying is much, much safer than driving.”
(How much safer? In 2001, 37,795 people died in the U.S. in fatal auto crashes, according to Department of Transportation statistics. Another 4882 pedestrians died after being struck by automobiles. Bad food aside, the truth is that the friendly skies really are very friendly – in 2000, a more typical year than 2001, only 92 people died on a commercial carrier all year. )
However, David Wessels, a professor of finance at Goizueta, says he doesn’t believe the attacks were the real cause of the airlines’ current woes. Although September 11 didn’t help the airlines’ condition, Wessels notes that the $5 billion the government gave to the airlines went a long way toward making up for their September 11-related losses. After spending this summer studying the airline industry, he now believes that their troubles began before the attacks. “I really don’t believe that the industry problems are 9/11 problems,” he says. “I assumed they were – that’s when all this really happened, that’s when they really started to bleed cash – but if you really look at the numbers, airline profitability, even today, tracks GDP [gross domestic product] growth so closely that it’s just staggering.” When the economy began to slow, he says, so did the airlines.
“The bottom line is the airline industry is unbelievably dependent on the economy, especially the full-service airlines,” he says. “They want those travelers who are willing to trade off time versus price; right now, most of the business travelers are saying, `my time is available, I want my price to be low.’ The full-service airlines need that to switch back to, `my time is low, and I’m willing to pay a price.’” And that’s only likely to happen when the economy picks up, he says.
But in every crisis there is an opportunity for someone, and September 11 proved no exception. Sheth says that defense contractors and security-related firms have both done well since the attacks. Insurance too is profiting, he says, “because they are now using this as an excuse to permanently raise rates, big time.”
Of course, the repercussions to September 11 weren’t confined within US borders. Nazrul Islam, a professor of economics who specializes in developing economies, says that he believes America’s response to 9/11 could have a profound effect on countries looking to increase their exports.
One important trend he sees is the growing awareness of Americans that some people don’t like them. He recalls a post-9/11 television news interview with a woman who said she couldn’t understand how people could be willing to kill themselves in order to kill us, when we’re such generous people.
The truth is that while Americans are personally generous, he says, “there’s an unfortunate kind of disconnect between how people behave here, inside the U.S., and how the foreign policy of the U.S. sometimes fails to protect that generosity because of some convolution that goes on in this process.”
Islam says Americans’ growing awareness of this disconnection between their own beliefs and their government’s practices on such issues as trade and environmental policy could eventually lead to new pressure on the government to change. “That’s an important development which could lead to some positive changes,” he says.
However, he adds, another reaction to 9/11 seems actually to have encouraged the Bush Administration to take more unilateral actions. Rather than seeing the situation as an opportunity to correct past problems, many Americans began asking themselves, why should we give more to people who despise us? Islam says.
This new isolationism may already be translating into greater difficulties for countries trying to reach trade agreements with the U.S., Islam speculates. He says it has also complicated relations with a number of trading partners that dispute the increased tariffs the Bush Administration placed on a variety of imports last spring, most notably on a variety of steel products. The Administration says these tariffs are needed to help preserve the industry against unfair competition, but Islam says that many people abroad have seen these actions as somewhat hypocritical given America’s typical free trade rhetoric.
But even more than the creeping protectionism, Islam is concerned with the way the U.S. is currently avoiding joint actions on such important issues as global environmental protection. He says America’s isolationist stance can have an important impact on whether real solutions are achieved. For instance, because the U.S. produces about 25% of the world’s carbon dioxide, the decision of the Bush Administration to not sign the Kyoto accord to reduce carbon dioxide emissions will make coordinating a response to global warming very difficult. “This is something that is not very necessary. The U.S. can provide leadership to this kind of issue: it has the technology and ability,” he says.
Harold Berman, a professor of law at Emory’s School of Law, also sees a dangerous tendency toward unilateralism in the Bush Administration, particularly since September 11.
“This was an attack on the whole world. It wasn’t just an attack on America,” states Berman, a specialist in international trade issues. There were hundreds of non-Americans killed too, he says. Berman believes it’s significant that the main attack was directed at the World Trade Center. The attackers were lashing out not just at the U.S., but the whole of Western civilization, he says.
“Every government in the world expressed sympathy with this situation, they all felt that they were involved. All over the world, watching television, everybody, everybody was in a state of shock. So it should have brought us closer to our allies and friends and associates in the world community of states,” Berman explains.
Instead, he says, it’s driven us apart. This division was due, in part, to our belief that America was the only victim, he says. Berman also believes it was because the U.S. responded to the attacks as an act of war rather than a crime. This position has only served to further isolate us with respect to world opinion, he notes, especially since the way our campaign in Afghanistan was fought resulted in the bombing of a number of innocent civilians.
Ultimately, Berman says, much of the trouble may be the result of arrogance within the Bush Administration. He says some seem to see the U.S. as a super power that doesn’t need to spend time building coalitions with other countries. “You should think partner, not superpower. Forget about this superpower business…we’ve got to have partnerships with other countries, otherwise we’ll have the whole world turn against us, and it would be disastrous. I suppose it’s a phase. Let’s hope.”
While saber-rattlers worked overtime in Washington this summer, Russian President Vladimir Putin moved forward with a large trade agreement with the Iraqis valued at about $40 billion. Berman, a Russian expert, says the Russians feel that the way to deal with an opponent is to trade with them, in order to have any influence on Iraqi policy.
Such recognition of the strategic value of trade (at least outside the Electoral College) is certainly something that some American presidents have understood as well. No slouch when it came to military solutions himself, President Dwight Eisenhower argued in his 1958 State of the Union address that international trade “strengthens our friends and increases their desire to be friends…America is today the world’s greatest trading nation. If we use this great asset wisely to meet the expanding demands of the world, we shall not only provide future opportunities for our own business, agriculture, and labor, but in the process strengthen our security posture and other prospects for a prosperous, harmonious world. As President [William] McKinley said, as long ago as 1901: `Isolation is no longer possible or desirable. . . . The period of exclusiveness is past.’”
