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The Economic Consequences of September 11th

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Introduction

�zkan Bugra Telemez 20300347 IR Dr.G�lriz B�ken 102.07 THE ECONOMIC CONSEQUENCES OF SEPTEMBER 11TH On September 11th 2001 two aircraft were hijacked by terrorists and flown into the towers of the World Trade Center, New York. The towers collapsed and thousands of people were killed. Additional to the tragic loss of life, economic consequences were felt by the micro-economy of Lower Manhattan New York, the US economy, and the global economy as a whole. "More than 700 businesses located in the World Trade Center complex were either destroyed, or sustained extensive damage"(Economic Impact of the September 11th Attack on New York) causing the loss of around 30% of Lower Manhattan's office space. "Industries occupying this space, mainly financial services and retail, were directly affected." (Fiscal Policy Institute, Sept 28 2001, Economic Impact of the September 11 World Trade Center Attack) As a result of the attack, "from September 11th through to the end of year, New York financial services will account for $4.2billion in losses of economic output." (Economic Impact of the September 11th Attack on New York) Consumer demand in the local economy weakened dramatically whilst people grieved. "The Fiscal Policy Institute assumed a 10% reduction in consumer spending for one month for non-essential items." (Fiscal Policy Institute, Sept 28 2001, Economic Impact of the September 11 World Trade Center Attack) "Destroyed was half a million square feet of retail." (Economic Impact of the September 11th Attack on New York) Many businesses occupying this space were small, which tend to be under-insured, making resurrection unlikely. ...read more.

Middle

Air travel throughout the nation saw a major reduction in turnover as a result of reduced passenger numbers. This had a subsequent effect on the tourism industry, with hotels, restaurants and attractions reporting falling numbers. "Several Broadway plays were forced to close within the first two weeks after September 11. The Fiscal Policy Institute assumed a 3% drop in media advertising revenues as constant, uninterrupted television coverage meant commercials were cut." (Fiscal Policy Institute, Sept 28 2001, Economic Impact of the September 11 World Trade Center Attack) Previous to the attacks, the United States economy was in a slump following recent boom years. The attacks led to two consecutive quarters of contraction. By the National Bureau of Economic Research's definition, the economy fell into recession, which in normal circumstances the US had been expected to avoid. This was caused by a lack of confidence in the economy, and changes in consumer behaviour nationwide. September 11 caused people to be less inclined to consume, lowering the velocity of money. Consumer spending and investment are a vital part of the economic cycle. If consumers stop spending, then companies do not receive the capital they need to continue producing and investing. The less producers produce, the less consumers consume and a downward spiral begins. Gradually the flow of money begins to dry up, GDP figures drop, and, eventually, if the government do not intervene, the economy comes to a standstill. ...read more.

Conclusion

This may also happen globally in the long-term. With the increased risk of terrorist attacks, firms producing security devices will see a sudden surge in demand, and investment in research and development will become more profitable. The long-term impact of the terrorist attacks will be to reinforce the pressures of the current US slowdown, and to extend it globally. The United States import a lot of goods from abroad. Due to the recession, demand for these goods will fall, affecting foreign producers' profit margins. This could lead to the lay-off of workers, and in the long-term, the spread of recession. "Growth through innovation will slow down" and many suppliers developing new or untested products will suffer. Badly hit will be the developing countries that produce commodities for the States, because as demand for commodities fall, prices will follow. The attacks may also result in a slowdown of future globalisation. In conclusion, the economic consequences of September 11th will be felt worldwide for many years to come and they highlighted the importance of government intervention within a market driven economy. The attacks were a shock to many industries and created uncertainty. In order to minimise these effects the government and private enterprise must pull together and invest. Globalisation and the growing trend towards a single, interdependent, global market meant that shock waves were felt internationally. September 11th showed firms how such reliance can be detrimental, and reinforced the need to spread risk. ...read more.

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