A year later, attacks have had little negative impact U.S. economy

War on terror could mirror Cold War society

By Thomas Wilson


   The U.S. financial picture was growing cloudy in early September 2001.
   The money drunkenness of an economy once termed "irrationally exuberan(t)" by U.S. Federal Reserve Chairman Alan Greenspan had created a substantial recessionary hangover in mid-2001.
   Then, Sept. 11 happened.
   "At the time of 9-11, we thought it was going to take a mild recession and turn it into a severe recession," said Dr. Steb Hipple of the Sept. 11 terrorist attacks' effect on the economy.
   "But looking back at the data now that the event is almost one year behind us, it's almost as if it never happened."
   The U.S. economy had slipped into a mild recession prior to Sept. 11.
   An economist with the East Tennessee State University's College of Business, Hipple said that while most economists had expected 9-11 to be a tremendous blow to the confidence levels of consumers and businesses, the economy exhibited a resilience in the months following the attacks.
   The economy bounced back with a strong economic rebound in the fourth quarter of 2001. The rebound was due in part to very vigorous action of automobile companies who offered zero percent financing on many vehicles, Hipple said.
   "People went out and bought cars. This pattern moved on to other types of consumer goods," he said. "It was also somewhat of a patriotic rebound that we were not going to let this event mess us up."
   He also said the fourth quarter performance was partially inspired by the nation's psychological reaction to the terrorist attacks.
   "They made us mad," Hipple stated. "Certain things are supposed to break the will of the enemy. Instead of breaking the will it gave them more resolve. So this event which was supposed to be a terrible attack on our psychology, if anything, backfired."
   In terms of current economic conditions, Hipple said the economy was experiencing "renewed weakness" in the goods-producing sector of construction and manufacturing -- a phenomenon that would have an effect in the Tri-Cities as well as nationally.
   "The Tri-Cities is a manufacturing center. The ups and downs of our economy here are really linked more to our international trade posture than the national economy," said Hipple. "As a manufacturing center, we are especially linked to what goes on in the mass production sector."
   A weaker dollar is actually good news for the Tri-Cities economy, according to Hipple. U.S. exports become cheaper and imports become more expensive because we buy less, explained Hipple. Thus, the nation's domestic markets expand and our foreign markets expand.
   The Tri-Cities' regional employment increased in the second quarter of 2002, growing by 1.6 percent to 216,211 in the April to June period.
   However, the number of unemployed workers rose by over 30 percent to 12,810. The jobless rate for the Tri-Cities metro area was 5.6 percent, compared to 5.8 percent for the United States as a whole.
   The region's economy actually suffered its own "mini-recession" during the mid-1980s when U.S. trade performance deteriorated and exports floundered, he said.
   The goods produced here have to compete with imported goods, he said.
   "Good, accurate data, unfortunately, is always several months behind. Where we are going and what is going to happen in the future is unclear," he said. "In a month or two we might have a clearer idea where we are going."
   Hipple explained national recessions were characterized in four letters by economists.
   A "V" shaped recession has a quick and vigorous recovery phase similar to the 1970 recession. A "U" shaped recession has a delayed recovery, and the economy lingers at low levels of business activity for some time. This occurred during the 1974-75 recession.
   Finally, an "L" shaped recession has a very weak recovery phase and it takes some time for the economy to get back to its long-run growth trend. This was the 1990-91 recession pattern.
   Some analysts see the national economy slipping into another recession. This is called the "W" scenario where two recessions occur one after the other.
   The "W" pattern occurred when the economy slipped and hit a recession in 1980, followed by the 1981-1982 recession.
   Normal recessions carry the seeds of recovery, Hipple said.
   "A recession is actually good for the economy," he said. "They cool down the labor market so that wage and salaries will be more linked to productivity rather than a shortage of labor. Business firms can clear out inventory overhangs."
   Recessions also forced business firms that prospered during a time of prosperity period but were poorly managed, to end up going out of business or being forced to downsize.
   A recession forces a lot of adjustments in the economy and lays the foundation for the next business expansion. Recessions are overall brief periods in our business expansion.
   "For every year we spend in recession, we will have seven or eight good years," said Hipple, "and I think everybody is ready for some good years now."
   He also downplayed the show-biz of business called the U.S. stock markets and their true impact on the American economy.
   "I tell my students, the stock market is actually a yard sale," Hipple said. "The bond markets and stock markets are secondary markets where people are buying and selling existing financial assets.
   "The stock market in a way is good theater, but its overall economic significance is not very great. It is a reflection of what is going on in the economy but it is not a factor in determining where the economy is going to go."
   Consumers rarely gauged their own spending or investment habit by the stock market's fluctuation, he added.
   Market instability occurred for a variety of reasons, noted Hipple.
   The clouds of recession that began forming in 2000, the events of 9-11, and the scandals embracing a number of large corporations in the financial community played a role in market volatility, he said.
   "That was not always true," said Hipple, citing the 1929 stock market crash that plunged the nation into the Great Depression. "There, the stock market crash was a causal event, because when the stock market crashed it took the banking sector with it and that took the economy with it."
   With the Federal Deposit Insurance Corp. (FDIC), commerce firewalls, and market stabilization policies of the U.S. Federal Reserve and federal government, the markets remained stable.
   A recent move by Saudi Arabian investors withdrawing several hundred billion dollars from the U.S. markets caused rumbling on a possible devaluation of the U.S dollar. However, Hipple said such a move would be negligible at best due to the vastness of the global financial market.
   "The Saudis can shift all of the money they want back and forth and it is going to have a negligible impact on the dollar," said Hipple. "You are talking about Saudi billions in a financial market where you are talking about trillions."
   More significant than banking manipulation would be an interruption in the Saudis' oil supply to the United States, said Hipple.
   The nation's "war on terror" could simply become part of the American social fabric, similar to the 40-year Cold War waged by the United States and the former Soviet Union, he said.
   He pointed out that other countries such as Spain and Northern Ireland had co-existed with acts of terrorism for generations.
   "My generation grew up in a world with the threat of nuclear annihilation," he recalled. "Part of the world in which you lived was a world where two nuclear superpowers could, in a matter of minutes, completely destroy each other; but you went on with your lives.
   "This may become part of 21st century society."