Mixed bag: How the attacks will affect the U.S. economy

By James J. Stewart
UMUC – Europe

I happen to have a son, who happens to have a wife, and they happen to have a new daughter, their first child, who was one week old when the terrorists attacked on 11 September.

James J. Stewart

Since it happens also that this family lives about one mile north of Ground Zero in New York City, they chose to evacuate after the twin towers fell because they were worried about the effects of the smoke and fumes in their apartment on the health of their infant. They moved twice within the next week, first to a friend's house on Long Island and then to my daughter-in-law's mother's home near Boston.

"It was a terrible thing," my son has since said, "But at least we got to see my friend, and my mother-in-law got to spend more time with our baby. For us, it's been a mixed bag."

Roughly the same conclusion can be drawn as to the effect of the attacks on America's economy. It has been—and looks to continue to be—a mixed bag. In the face of a previously incipient recession, some industries and localities have suffered further, while others may now halt their fall and even prosper. What the government does, or doesn't do, may be quite significant, as will be the unity and resolve—or lack of it—of the American people. Finally, there is truly substantial uncertainty about what will happen to the economy, which should be viewed in a global context. Let's address each of these areas in turn:

Some industries and localities to suffer

Airlines, convention service, hospitality, insurance.

Airport hubs such as Cincinnati, Saint Louis, and Salt Lake City.

Tourist and convention centers such as Las Vegas, Honolulu, Miami, and Orlando.

Some industries and localities to benefit

Defense, education, security, telecommunications.

Military base host localities such as San Diego and South Carolina.

Why should education benefit, some might ask? It is because in times of economic uncertainty, students tend to remain in school, hoping that the job market will improve while they do.

Three other factors

1. Government actions

Tax reductions, extended unemployment benefits, and loosened securities trading rules, as well as direct relief packages for the airlines, will mitigate further economic weakening, and it appears that a Republican Administration has no qualms in asking the Congress for them.

2. The will of the people

Should the American people lose their immediate post-attack unity and resolve, and opt to enjoy their traditional freedoms and to forego increased security measures, then more terrorist attacks will occur, and that will worsen the weakening of the economy.

3. Uncertainty

One reads that analysts' estimates of General Motors' earnings for the fourth quarter of 2001 now range, per common share, from 25 cents to $1.60. In the same time period, United Airlines is predicted to lose between $10 and $62 billion. Such ranges are historically enormous and suggest the substantial uncertainty that surrounds our attempts to predict the economy.

In addition, there is Europe. While the United States is arguably recessing and Japan is inconvertibly doing so for the fourth time in a decade, no one knows for sure whether Europe will be pulled into the maelstrom. Many think that it will, but others argue that the European Union has become strong and inwardly reliant enough to possibly escape this fate. They point to increased intra-European trade, free movement of labor and capital, continued harmonization of laws, and the Jan. 1 arrival of the euro as the currency of 12 nations.

Finally, if U.S. military action against terrorism succeeds, that will boost the American economy—but a Jimmy Carter-style debacle in the sands of the Middle East or South Asia can only serve to drag the economy further down.

My son in New York City is an author by profession. He has just gotten an advance from a publisher there to write a book on a Spanish personage of the 19th century. So that he can do his research, he, with his wife and their infant daughter, is coming to Europe this winter. My wife and I, happily, will get to see them. I think that he's a United Airlines frequent flyer, too.

As I said, it's a mixed bag.

James J. Stewart is an American who lives and works in Germany. He has been a UMUC faculty member since 1989 and is an adjunct professor in the Graduate School. He guides business, management, and computer courses, increasingly by distance education worldwide. Stewart's doctorate, in engineering administration, is from George Washington University. You can learn more about him by visiting his personal Web site.