Last week's disaster probably pushed the United States economy
into recession. But judging by history, a recovery could come
faster than many Americans may now expect.
The vast economy has sturdiness - and a responsiveness to the
fuel of low interest rates, tax cuts, and new spending - that bode
well for the future. One new study of disasters, from the Kennedy
assassination to Hurricane Andrew, found a short-lived impact on
the broad economy - often just a few months.
The great uncertainty is that last week's attacks represent a
different type of disaster from other recent events. The effect,
psychologically at least, is not isolated to a single city or
region. From travel agencies to auto showrooms, sellers of big-
ticket items worry that consumer confidence has been shaken - and
could be further rattled if a crackdown on terrorists prompts
Federal Reserve Chairman Alan Greenspan highlighted these
divergent economic forces in Washington yesterday.
"The American economy has become increasingly resilient to
shocks," he told the Senate Banking Committee. He said the
economy's long-run prospects "have not been significantly
diminished by these terrible events."
But he added sobering notes. "In contrast to natural disasters,
last week's events are of far greater concern because they strike
at the roots of our free society, one aspect of which is our market-
At the moment, while stock prices have plunged and air traffic
has been curtailed, experts see signs that shoppers are returning
to at least their basic spending routines after a week of near-
Over the longer run, devastating events can change the pattern of
economic activity in important ways. The 1973-74 hike in oil prices
altered business and consumer practices. Today, extra security
measures in the nation could hurt corporate profits and boost
Already, alternative means of transportation - railways and
buses, for instance - have been booming. Teleconferencing has
become more popular.
In his testimony, Greenspan speculated there could be an
upwelling of support for expanded free trade - a side-effect of
newfound global unity against terrorists.
While there is no easy comparison to the tragedy at the World
Trade Center and the Pentagon, a new business-backed study offers
some useful insights.
Looking at 14 serious events, ranging from the assassinations of
President Kennedy and Martin Luther King to the previous bombing of
the World Trade Center, it found that the economic effects often
lasted just two or three months.
"Then there is a rebound," says business-cycle expert Victor
Zarnowitz , the economist who did the study for the New York-based
Measuring past disasters
Major natural disasters - such as Hurricane Andrew in 1992 or the
Northridge, Calif. earthquake of 1994 - barely show up in the
national statistics on output or unemployment for the year.
The current scenario is more severe, in both loss of life and
economic impacts such as the temporary airport shutdown.
While this may deepen a recession, government stimulus is paving
the way for a rebound.
"Recovery will be a bit stronger than it was going to be," says
Paul Kasriel of the Northern Trust Co. in Chicago. "But it will
start from a lower base."
He and some other economists now expect a snapback to to begin
early in 2002 - rather than later this year. …