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The choice to bomb the World Trade Center was more than symbolic. The collapse of the towers coincided with a slowing global economy and was probably intended to cause as much economic as physical harm. The crisis will have deep economic repercussions in a number of areas; while some parts of the economy will be hurt, other sectors may actually benefit, and it is possible that increased defense spending could stimulate the slowing economy in the short run. A global economy requires openness and speed, whereas increased security often entails putting up barriers and walls. The war on terrorism will also dramatically increase security costs at every level. America’s distant global commitments may become enormously expensive and draining. The war on terrorism will decrease consumer spending, the stock market, exchange rates, airline costs, and immigration rates. Furthermore, how will a slowing global economy respond and deteriorate the slowing American economy?
The terrorist attacks on the World Trade Center will cost New York’s economy up to 105 billion dollars and 115,000 jobs. Allen Hevesi, the city comptroller, did a recent report of the breakdown of some costs: Rebuilding the World Trade Center as smaller buildings will cost 6.7 billion; Repairing and restoring other damaged buildings will cost 5.3 billion; Value of equipment, vehicles, computer systems destroyed will cost 12 billion; Lost wages using estimate of 5,600 people will cost 11 billion; Clean-up and stabilization of WTC site will cost 9 billion; City government overtime, vehicle losses, road building will cost 7 billion; Spending by private owners on repairs will cost 1 billion; Treating injured, loss of income from injuries will cost 3 billion; Lost business and economic activity will cost 21 billion; Lost rent for damaged buildings will cost 1.75 billion; Lost wages because of companies leaving New York will cost 3 billion. The city will need additional federal aid to recover. The long-term impact of the attacks depends on how quickly the nation’s economy recover and the decisions on where to locate by the companies. The city initially paid for clearing the area and the most visible portion of the cleanup, which was nearly a half a million tons of steel, concrete and debris.
The World Trade Center attacks were said to be hurting the civilian economy in ways that merely a military engagement like the Persian Gulf War didn’t. MSNBC news reported that because of its global scale and long-term nature, the war on terrorism will cost more than the Persian Gulf War, which totaled about $80 billion in constant fiscal-year 2002 dollars. The Vietnam War, by contrast, cost $572 billion in 2002 dollars. US government spending as a percentage of gross domestic product peaked at 43.7% in 1944 during World War II and was only 20.5% at the height of the Vietnam War in 1968. It is currently about 18%. This is all said to be because in relation to the size of the overall economy, the increase in government spending this time will not be sufficient to compensate for the dampening effect of the threat itself. MSNBC news also reported that the money expected to be spent as a result of the attacks overstates the great impact of fresh government spending, since much of it will simply go to replace lost incomes.
The economics of war show that in wartime, the production of standard consumer goods has to be curtailed in favor of weapons, army supply, medications and other products that are in high demand. The best way to do this is to let the private sector respond to incentives, even though government spending now plays a big part in determining what should and should not be produced since it becomes the biggest client for these products. That is not the way things have been done in the wars of the 20th century though. On the contrary, governments have used each such opportunity to increase their control on the productive sector, proving that indeed, war is the health of the state. Wars have powerful and mostly negative economic effects, arising from loss of production capacity, movement of manpower, reduced foreign exchange earnings and subsequently imports.
The cost of disasters has been said to be very expensive. The Federal Emergency Management Agency (FEMA) reported that damage from hurricanes over the past ten years has been more frequent and costly to American taxpayers than any similar period in recent history. According to FEMA data, a total of 32 Presidential major disasters were declared from 1988 through 1997 for damage from Atlantic and Pacific hurricanes affecting 17 states on the United States mainland, Puerto Rico and the US Virgin Islands in the Caribbean, and American Samoa and Hawaii in the Pacific. The cost to the nation for these disasters currently stands at more than $5.2 billion in FEMA recovery funding alone. Those figures contrast with the previous ten years when 21 major disasters were declared and $552 million in FEMA assistance was needed to aid recoveries from ten hurricane strikes affecting 12 mainland states, Puerto Rico, the US Virgin Islands and American Samoa. FEMA figures also show that the 1988-1997 period spawned several of the most intense hurricanes in recent history, led by Hurricane Andrew’s assault on South Florida and parts of Louisiana in 1992.