The aim of this research paper is to discuss and analyze the impact of the 9/11 terrorists attacks on U. S. economy. As it is well known this unfortunate event shook the lives of not only the New York population or the entire country, but of the whole world. In addition to the numerous lives that were lost, many sectors of the economy were greatly affected. For example, the Dow Jones and S&P suffered a big fall after the terrorist attacks and it will be shown in this paper that even at this time the stock market is not completely recovered.
Also, the national security in the U. S. took a great hit with the attack to the Pentagon building in Virginia, “taking the lives of 125 occupants, and destroying a massive amount of important information relevant to the operations of military service serving nationally and internationally”(Roberts, 2002). Up to this point the security was taken for granted due to the fact that this country had never experienced an event or terrorist attack of such magnitude. Another area greatly shaken by the terrorist’s acts was the travel and tourism.
It is well known that this sector plays an important role in the economy of many countries, most importantly in the U. S. being the number one potency of the world. In general, the tendency of people to travel decreased because they felt their personal safety was threatened by these incidents. The insurance industry was also profoundly affected by the 9/11 attacks. With all the lost lives and the massive property destruction, insurance companies faced and are still facing innumerable claims that originate from different sectors that were directly or indirectly affected.
In this paper we will present the view of Dr. Robert Hartwig, economist and president of the Insurance Information Institute; regarding the hit taken by insurance companies. In addition to the many industries economically affected, the war expenses increased since September 11 according to Thomas L. Friedman in his book The World is flat. Throughout the content of this paper we will further examine the different trends in the areas of Travel and Tourism, Insurance Market, Stock Market and War Expenses.
Travel and Tourism The industry of travel and tourism accounts for a good portion of a country’s economic status. However, it is highly vulnerable to shocking events such as wars, acts of terrorism, currency instability, among others. Starting out with the airlines industry, the impact of terrorism on 9/11 was immediately felt. The act of someone hijacking an airplane full of people and crashing it against a sky-riser had never been witnessed nor has any precedent in aviation history.
As a result of this tragic event all aviation activities were shutdown for four days, bringing along a devastating economic loss in the U. S. “Airlines lost $1. 4 billion in revenue in the four-day shutdown of aviation system after attacks. The four planes that were involved were valued at $385 million” (Jasen, 2011). Moreover “travelers stayed away from air travel as increased security measures created a hassle factor, especially for short trips. The number of passengers traveling less than 250 miles fell 45 percent putting also a burden on employment, which fell by 30 percent, or 165,000 jobs.
Thirty-nine carriers filed for bankruptcy protection, according to the Air Travel Association” (Jasen, 2011). This made the hole even deeper for the economy which was already facing rough times prior to the terrorist attacks. “At the time of 9/11, the industry was already in financial trouble due to the recession. 9/11 severely compounded the industry’s financial problem” (Makinen, 2002). The financial trouble caused by this event along with the recession the U. S. economy was already going through left a big dent in consumer spending.
Another significant and instant global impact on national and international travel was the volume of travelers and the preference of destinations. “In the immediate aftermath of 9/11, there was a massive drop in air travel, which was not confined to the USA but was global in scale” (Beirman, 2011). The repercussion of this event left travelers hesitant about air travel with a feeling of possibly jeopardizing personal safety; and according to Cornell and Roberts the people who were still willing to travel preferred to change destinations; perhaps where there is less exposure to personal risk.
“The attacks induced substitution away from air travel generally and caused a shift in the preferences of travelers for particular destinations. The United States in particular experienced an immediate and precipitous drop in arrivals of international visitors, particularly from those flying in from overseas” (Cornwell & Roberts, 2010). Insurance The insurance industry was another sector deeply affected by the terrorist attacks of 9/11.
According to Robert Hartwig, economist and president of the Insurance Information Institute, “the 9/11 attack was the largest payout in the history of insurance until hurricane Katrina in 2005” (Hartwig, 2011). Insurance companies faced and are still facing innumerable number of claims from the devastating number of lives lost from the internationally recognized World Trade Center which was the workplace of many thousands of civilians, the Pentagon building in Virginia – one of the military sites in United States, and the people in Pennsylvania whose lives were taken with the crash of one of the four airplanes.
“Insurers became the nation’s economic first responders and as construction progresses on the site of the former World Trade Center, insurance claims dollars continue to play an essential and highly visible role in rebuilding lower Manhattan while also mitigating the overall economic impact of the 9/11 attack” (Hartwig, 2011).
It has been said that the results of 9/11 gave rise to the largest single claim in the history of the world; with all the claims originating from different areas such as worker’s compensation, life insurance, business interruption, aviation, event cancellation, aviation liability, property of World Trade Center, other properties. The following pie graph will provide a percentage breakdown of estimated September 11 industry loss at 2001 price level (Hartwig, 2006). Graph 1. Insurance Industry loss estimates Source: Insurance Information Insitute
Prior to the 9/11 attacks nobody had imagined anything of such magnitude; therefore insurance companies didn’t offer coverage against terrorism as a separate category. According to a 2010 report, “power plants, ports, airports, sports stadiums, shopping malls, and almost every tourist attraction are insured” (Jasen, 2011). This shows that companies and people are more aware of any possible terrorist attacks; making them spend money that could be assigned to other expenses or more profitable purposes as it is marketing, research, equipment, capabilities, among others.
War Expenses Impact Although this economic industry is not directly affected by the 9/11 attacks, it has an indirect cost that has changed the way of life of all Americans. In the last century the United States has lived through tough wars, such as Vietnam War in 1953, Gulf War in 1990, etc. But the point of discussion in this paper is the War on Terror or War against Al-Qaeda, Taliban, and Iraqi Insurgents after September 11 of 2001; to go into further detail, the economic impact that US has been suffering because of this particular War.
Something that is shocking about the economic crisis that United States is currently living and it will live during the next decade was read at the Thomas L. Friedman book The World is Flat (Friedman, 2005), this book shows how the U. S is falling behind in science, and innovation and technology; also the author exhibits the lack of infrastructure, funding for research, but focus on war. This has given an open window to other countries to succeed in developing and innovating focusing in the wealth of their economies.
The pride impact that the country of the United States had in 9/11 does not compare with the economic shock. This is reflected in all the fields such as stock market, real state, tourism, airlines, insurance, and many more. Some of them have been point of discussion in this paper. The cost of War the United States has spent since the 9/11 attacks are outrageous; to have a better outlook, these expenses are shown in Table 1. (U. S security spending, 2011)