Monday, 7 September 2009

The price America paid for the September 11 attacks

Tim Harford at asks what is the economic price that America has paid for the September 11 attacks. He writes,
Early estimates suggested that the economic cost alone might be grievous. The International Monetary Fund’s World Economic Outlook, published three months after the attacks, thought that losses to the US economy could total $75bn. Others thought the economic damage would be greater. Robert E. Looney, a professor at the Naval Postgraduate School, estimated in 2002 that direct costs exceeded $27bn but the effect of the disruption might total $500bn. A study by the New York City Comptroller’s Office estimated that the city alone would lose a cumulative $58bn between 2001 and 2004 as a result of the attacks.
There have been some very ingenious attempts at answering the question.
Alberto Abadie of Harvard and Sofia Dermisi of Roosevelt University looked not at New York but at Chicago to estimate one consequence of the attacks. Chicago, after all, suffered no damage and enjoyed no reconstruction boom. But as the home of the Sears Tower, the tallest building in the US, Chicago might have suffered a psychological blow as a possible target for a future attack. Sure enough, vacancy rates in and near the Sears Tower and two other famous Chicago skyscrapers rose sharply relative to rates elsewhere in the city.
Harford notes that a recent issue of the journal Peace Economics, Peace Science and Public Policy looks at the economic impact of the September 11 attacks in two different ways.
One approach is to look at the entire economy and try to figure out what damage was done by the attacks – no easy task given the fact that the dotcom bubble had been deflating and the economy was entering recession at about the time the terrorists struck. The other approach is narrower, looking at – for example – the impact on New York City rents and wages.
The results?
Reading the full range of studies, I have concluded that the direct physical effects of such a horrific attack had been smaller than most people expected. Perhaps $25bn of buildings were destroyed; the lifetime wages of the victims would have been about $10bn, which is a crude way of calculating the narrow economic impact of a mass murder. But beyond that, there seem to have been few immediate economic consequences for New York City.

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