How Bin Laden Failed to Wreck the U.S. Economy


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by Daniel Gross

In an era when global markets process failure, success, and shocking events with ever-increasing speed, it’s not surprising that the death of Osama bin Laden barely registered. Oil fell by almost $2 per barrel this morning, after the news broke, to about $112, and then quickly bounced back to $114. The dollar weakened a bit, and the stock market rose a little. As pundits chewed over the geopolitical meaning of the strike, investors turned their attention back to the large factors that are impacting asset prices. After all, the timely demise of an old thug holed up in Pakistan can’t do much to impact the earnings of U.S. industrial companies, the thirst of China’s economy for petroleum, or the earnings potential of Facebook.

As we consider what bin Laden wrought, that’s somehow fitting. It’s common to speak of a post-9/11 world in diplomacy, defense policy, civil liberties and foreign policy — one in which everything changed. In theory, the attacks of 9/11 and their aftermath should have ushered in a new economic era as well. After the attacks, some businesses (airlines, hotels) suffered horribly, while others (security and defense firms) prospered. And some things did change. Iraq and Afghanistan exacted an enormous human and financial cost on the U.S. Funding the wars with debt —and with no offsetting costs or revenue sources — has aggravated the nation’s fiscal plight.

But taking the long view, the attacks utterly failed in their effort to create new economic realities for the U.S. and for the global economy. Consider: Bin Laden’s primary goal was to strike a fatal blow at the prestige and power of the U.S. and of New York, in particular. In the days after the attack, there were serious questions about the city’s future. Who would want to work in an office tower? How could the financial sector and the markets recover? Wouldn’t this destroy the centrality of this city — and of cities generally — to America’s economy? Those fears dissipated in a matter of months. New York today stands as a living refutation of all these concerns.

Another goal was to disrupt America’s ability and desire to connect with the world economically. The natural reaction for a nation that suffers such an attack would be to shut its doors, to turn inward, to subject goods and people coming from abroad to a higher level of scrutiny. A permanently heightened focus on security would throw sand into the gears of the global economy. Here, too, bin Laden failed miserably.

Yes, the U.S. aviation system is still struggling to strike the proper balance between efficiency and security.  And concerns about security put the kibosh on a few transactions, such as when a Dubai-based company wanted to buy the firm that ran Baltimore’s port. But otherwise, America’s interconnections with the rest of the world have grown by leaps and bounds in the post 9/11-era. Consider the data on international trade. In 2001, exports were about $1 trillion and imports were $1.37 trillion, with total trade coming to $2.4 trillion. By 2010, exports had grown to $1.83 trillion and imports to $2.33 trillion, with the total volume of trade rising 75 percent from 2001 to $4.2 trillion. And while many visitors have had unpleasant experiences with security at U.S. airports, the ability —and desire — of foreigners to visit has barely been impacted. International arrivals to the U.S. have risen from 39.2 million in 2001 to 59.8 million in 2010 , up 53 percent. Foreign direct investment in the U.S. rose from $75 billion in 2002 to $189 billion last year.

One enduring legacy of the post 9/11 world has been more ambiguous — a reliance on extremely low interest rates courtesy of the Federal Reserve. It’s often forgotten, but the Greenspan Fed responded to the attacks by flooding the financial system with liquidity. Between August 21, 2001 and December 2, 2001, it cut the Fed Funds rate in half, from 3.5 to 1.75 percent. The rate would ultimately fall to 1 percent in June 2002, and it wasn’t until November 2004 that it would rise above 2 percent again. This response was mimicked by the Bernanke Fed in the aftermath of the events of September 15, 2008. Over the past ten years, the Fed Funds rate has been at or below 2 percent for more than half the time.

There’s a larger way in which the events of 9/11 still resonate in the way we think about the global economy today. On 9/11, we learned that events and conditions in obscure places in the Middle East can have a significant direct impact on asset prices and on our economic lives.  Given the continuing rise of globalization and trade, that’s even more the case today. And just as neglecting the festering pathologies of Afghanistan in the pre-9/11 period proved damaging, we continue to find that neglecting the festering pathologies of other regimes in the Middle East can lead to havoc.

Looking back, we should be enormously proud and gratified that the U.S. economy, and the larger global trading system, was able to absorb the shock of 9/11 and move on. This resilience has proved to be an enormous source of strength. But we shouldn’t be triumphant or arrogant about it. The post 9/11 economy is more interconnected, more dependent on oil, and hence more susceptible to shocks than ever before. And we have certainly seen plenty of them in the past many months — from the domestic housing market to Greece, from Tunisia’s political upheaval to Japan’s earthquake. In the post 9/11 economy, serious disruptions, like bin Laden’s attack, can still come from out of the clear blue sky with little warning.;_ylt=AiNtVt3XN9KloeKtES47rra7YWsA;_ylu=X3oDMTFmdG1taWY2BHBvcwM0BHNlYwNleHBlcnRPcGluaW9uRHluYW1pYwRzbGsDaG93YmlubGFkZW5m?x=0&sec=topStories&pos=9&asset=&ccode=

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