The Challenge of the New Age
Edited by David H. McIntyre and William I. Hancock
Chapter 1: Terror and the Economy
David Wyss We’re at war . . . somebody’s going to pay. (President George W. Bush, 9.45am, 11 September 2001, 9/11 Commission Report, p. 39) INTRODUCTION When the President spoke these words to the Vice-President on that fateful morning, he no doubt was referring to the unknown attackers. His words, though, had another meaning. America would suffer told and untold losses from the horrific events of 9/11. Terror attacks have an impact on the overall economy as well as on individual companies and lives. Damage to property is usually far less important than damage to confidence and the increase in perceived risk. As companies concentrate on minimizing risk, they back away from investing in affected areas, moving instead to less risky locations. Consumers cut back spending on travel and entertainment; instead they concentrate on ‘cocooning’ with their families in the suburbs. The costs of preventing terror also have an impact on the economy. Homeland security adds to government and private costs. The impact on gross domestic product (GDP) depends on whether the payments are by the private sector or the government, but this is an accounting issue. Someone must pay the costs. Terrorism is an economic weapon as well as a political weapon. Attacks on critical facilities can affect bottleneck industries and thus the economy. Pure terror attacks, such as the one on the World Trade Center (WTC), will affect the economy indirectly through its effect on confidence and financial markets. Attacks on oil facilities in the Middle East have a direct impact...