Chris Varvares fled the World Trade Center on foot on 9/11, then bought a new Toyota Sequoia in New Jersey and drove back to St. Louis with four colleagues.
Along the way, he was struck by the contrast between the chaos in lower Manhattan and the relatively normal lives people were leading elsewhere. When Varvares, who had been attending a convention in a hotel at the foot of the Twin Towers, got back to his job as an economic forecaster, he came down on the side of optimism.
His forecast assumed that the U.S. would respond effectively and prevent further attacks. There was no way to know if that would happen but if it did, Varvares recalled recently, “It made sense that the cyclical impact would be short-lived and we would bounce back.”
The economy was already weak, and in fact economists would later decide that it was in the middle of an eight-month recession that began in March 2001. The 9/11 attacks, which shut down air travel for three days and closed the stock market for four days, made the recession deeper.
Varvares saw, though, that beyond the obvious loss of life and destruction of buildings, the terrorists hadn’t done serious damage to the nation’s economic fabric. “If you don’t destroy the capital stock or torque relative prices in such a dramatic way as to affect people’s decisions, the economy will come back,” he said.
To be sure, 9/11 cost businesses and government a lot of money. Insurance losses were estimated at $40 billion. Military spending escalated to fight wars in Iraq and Afghanistan. The Transportation Security Administration, created two months after 9/11, has 54,000 employees and an $8 billion budget.
Those are dead-weight costs that don’t make businesses more productive or increase consumers’ standard of living. The time we spend waiting in security lines is another dead-weight cost: It takes away from our ability to either work or enjoy leisure time.
Such costs, however, are small relative to the nation’s $22 trillion gross domestic product. And if 9/11 hadn’t shocked us into tightening security at airports, stadiums and office buildings, the epidemic of mass shootings probably would have provoked similar measures.
“Given that a lot of what we did would have happened anyway, the impacts are probably lost in the rounding on the level of GDP,” said Varvares, who is co-head of U.S. economics for IHS Markit.
At a distance of two decades, then, we can see that Americans adjusted to new risks and inconveniences and went on about their business. Will we be able to say the same thing about COVID-19 by 2040?
On the one hand, the pandemic has taken far more lives than 9/11, and it had profound economic effects, including the loss of 20 million jobs.
“The collapse in the spring of 2020 was dramatic,” said Steven Fazzari, professor of economics at Washington University. “When you look at a long-term timeline of GDP or employment you’re never going to miss it, whereas the 2001 recession, you can hardly see it.”
On the other hand, the government has spent trillions of dollars to keep businesses and consumers afloat. Output has already returned to its pre-pandemic level, and economists think we’ll be ahead of the previous growth path — where the economy would have been if COVID-19 hadn’t happened — by next year.
Boosted by the fiscal response, the rapid development of vaccines and the spread of technologies such as Zoom, the American economy is once again proving resilient after a major shock.