Economic Impacts Essay Example for Free

Economic Impacts Essay The Attack on the World Trade Centre in Manhattan had happened on September 11, 2001. The attack had led to the destruction of numerous buildings and lost of lives. This had greatly affected not only the citizens of the United States. The incident had also affected the economy of the country. According to the report of Mr. George Kahn (2001) , the vice-president   and economist of Federal Reserve Bank of Kansas, US economic growth had already slowed dramatically. Based on the experiences in the year 1996 to 1999, a growth in the GDP has been experienced. It is only logical to think that GDP will continue to rise in the next few years. However, Real GDP has slowed to a 2.8% rate of growth last year. Unemployment had moved down from 3.9% in th year 2000 to 4.9% in August. The slowdown in the economy had led to unexpected increase in energy prices and re-evaluation of the prospects for corporate earnings. Prices in the stock market have been affected, and consumer spending began to slow down. In early September, prices on energy began to stabilize and consumer spending had hold-up. Although manufacturing activity continued to decline but in a slower rate as compared to what happened in the early part of the year. However, this has all changed after the attack in September 11. 2001. Looney (2002) has used categories to differentiate the different economic impacts of the attack in the United States. His categories were based on two types. First is the nature of the impact and second is the length of time the economy has affected the country. In this paper, the author would use the length of time the impact has on the economy. These effects would be divided into three parts: The short-term impact, the medium-term impact and the long-term impact. Short-term impacts of the economy can be further categorized into two. These are the immediate short-term direct impact and the immediate short-term indirect impact. Looney (2002) had enumerated several short-term impacts after the September 11, 2001 attack. For the immediate short-term direct impact, it was stated that Lower Manhattan of New York had lost an approximate of 30% of its office space because of the attack. Reports stated that an estimate of 200,000 were destroyed or relocated out of New York City. Estimated cost of destruction of physical assets in businesses amounts to $ 14Billion for private business, $ 1.7Billion for the local and state assets and $ 0.8Billion for federal enterprises. Rescue, cleanup operations and other cost related to these two is approximately $11 Billion. Total direct costs as computed by Looney (2002) in the article, is estimated to be at around $27.2 Billion. However, Mr. Alan Hevesi, had considered other factors that was not included in the article of Robert Looney. Hevesi (2001) considered the lost of human capital which is estimated to be at $11 billion. These are the lives of the workers who had been killed during the attack. This figure is based on the expected earnings during the personâ€⠄¢s remaining work life. Indirect short term impacts of the attack are the following: Consensus forecast for the GDP growth of the US economy is lowered by 0.5 percentage points in the year 2001 and 1.2 percentage points in the year 2002. Implied projected cumulative lost from the attack up to the year 2003 is estimated to be half a trillion dollars. Private sector investments went down the same with their inventory levels. The attack had shown the government that an additional investment is needed for the security of the country. It is estimated that an increase of 9.25% in defense spending was used by the government. Firms such as security and information technology had increase in demand. Federal Reserve had lowered the price of credit and and temporarily liquidated their assets to safeguard the integrity of the financial system and save businesses from bankruptcy. Aside from the impacts stated above by Looney (2002), Hevesi included factors such as disabilities and trauma to be at $3Billion, business interruption, training and liability losses to be at $21 Billion, Net Lost Rents of $ 1.05 Billion from both the damaged and destroyed buildings and Lost wages which amounts to $9.6 Billion In the medium term, Looney had defined several sectors that had been affected by the attacks. Five areas were highlighted on his report and these are the Insurance, Airlines, Tourism and other service industries, Shipping, and Defense. Losses of the Insurance industry are estimated to be at $30 to $58 Billion. These losses are the highest record in the history of the country. Primary insurers have increased their premiums and dropped their coverages for terrorism related risk, this in turn had affected other key industries. Strongest impacts of the insurance were seen in the aviation, tourism, transportation, construction and energy generation sectors. Commercial property and liability insurance rates have been raised by 30% on the average. The terrorist had used airplanes in order to trigger the attack on the World Trade Center and the Pentagon. This had lead in putting the aviation industry in a weak position. An estimate of 20% decrease on the service orders had been ecperienced by airlines. Government support and airline passenger traffic was below normal and an estimate of 100,000 layoffs has been announced. Employment opportunities which were normally up in October and November fell by 80,000 or an estimate of 8% from the expected. Another sector that has been greatly affected is the tourism and service sector. These include hotels, tours, automobile rentals, travel agencies, and civilian aircraft manufacturers. As stated by Looney (2002), hotels have reported higher vacancy rates and employment in the sector as a whole fell by 58,000 in October and November. Relative Equity Values declined by 15%. Preliminary report of Fiscal Policy Institute in New York (2001) included attendance of people in the Broadway theatres had also decreased.. The Shipping sector was in a way affected by the attack, Maritime shipping rates had increased from 5 to 10 percent on average in the two weeks after the attack. Relative stability of freight rates ,despite the decrease in fuel costs and under-utilized capacity of the ships implied that transportation cost had increased because of the attacks Defense sector had experienced a significant increase on security-related programs in the budget for the year 2003. An additional budget of $48Billion was proposed for national defense. Homeland security budget was also increased from $20 Billion in 2001 to $38 Billion in 2002. An enhancement on the training of first responders which are the fireman, police and rescue workers were done, total preparation amounted to $8 Billion for domestic defense spending. The Fiscal Policy Institute or FPI (2001) included in their report losses on advertising because after the attacks commercial runs on television networks were cut down. FPI (2001) had estimated that there would be a 1,000 reduction in advertising employment and a 3% drop of revenues would be experienced by the advertising sector. Looney (2002), enumerated five effects in the   economy. These effects are higher operating costs, higher level of inventories, higher risk premium, Shift of resources t the military defense, and the shift away from globalization. As stated above, several increase in spending for defense had been experienced by the country, and higher insurance premiums were also done in the industry.   The attacks and also led to longer wait for time activities because several sectors and consumers are already cautious. These three reasons had led economist to say that higher operating costs maybe experienced by the industries in the country. Since businesses had been interrupted because of the attacks, several companies were not able to resume immediately. Businesses may be required to hold larger inventories at scale for fear that their suppliers may not be able to give the materials that they needed on time. An evidence on these was shown in the article of Looney wherein the auto industry production was interrupted because availability   of components were not immediately shipped out because of the delays in the crossing of the US-Canada Borders. The attack may have lead investors to avoid risking their money in businesses. As a result, higher risk premiums may be passed on to businesses in the form of higher interest rates, and lower equity prices. This could also lead to lower equity prices, business investment lowering and smaller capital stocks. The attack had been a terrorism activity. In response to this issue, the government would most likely divert their attention in strengthening the country’s defense through the military. Many resources may be diverted to military use. Research and Development Resources can be also shifted to concentrate on the development of new devices to thwart terrorism activities. Since there had been interruption in the cross-borders of the country, investors may think twice in investing abroad and concentrate on domestic investments. During this time, the â€Å"anthrax† scare is already being shown in the media. Several investors and the government may have taken this into consideration as such higher cost could be experienced because the businesses and the government would closely inspect items going in and out of the country. In the Chicago GSB magazine, the authors have included economic recovery for the country. According to Kevin Murphy, part of the debate team, expected recovery of the economy may occur within 15 months after the attack. Measured loss in the economy is estimated to be at 0.6% of the total asset of the country. Judging from the percentage of economic loss, the percentage shows a very minimal figure. Gary S. Becker, another part of the team had also stated that the country had retained basically all the human capital prior to the attack and because of this, the US economy would recover fully. It has been 6 years since the attack of the terrorist in the United States. Prior to the attack the economy of the country is already in the decline stage and this had been accelerated by the attack in the World Trade Center. Although the attack had greatly affected the economy, it is necessary to think on the before situation of the country because that situation had also affected the impact of the attack. The economy of the United States had already recovered since then, however, same security measures are still being by the country to address the issue of terrorism.