How the 9/11 Attacks Affect the Economy Today
What Is Their Lasting Damage?
The 9/11 attacks had both immediate and long-term economic impacts, some of which continue to this day. The attacks closed the stock market for a week and caused the Dow to drop almost 700 points, further deepening the 2001 recession.
While it cost al-Qaeda an estimated $400,000 to $500,000 to plan and carry out the attacks, it cost the U.S. much more.
The breakdown below includes immediate costs and physical damages that resulted from the attack. These were much less than the long term impact of wars, which escalated spending in the Departments of Homeland Security and Veterans Affairs.
The 9/11 attacks also led to the War on Terror, one of the biggest government spending programs in U.S. history. A 2018 report from Brown University put the total costs of subsequent wars between 2001 and 2019 at $5.93 trillion.
This includes more than $2 billion spent on wars fought overseas. These wars required almost $1 trillion increases each to the Departments of Defense and Homeland Security. The estimate includes more than $1 trillion on veterans' medical and disability costs.
- Before 9/11, no one expected terrorism to happen on home ground, let alone one on such a devastating scale.
- The September 11 attacks further strained an economy hampered by the 2001 recession.
- The U.S. responded to these attacks by launching the “War on Terror.”
- Defense spending to support the War on Terror has cost the U.S. almost $6 trillion.
What Happened on 9/11?
On the morning of Sept. 11, 2001, 19 terrorists hijacked four planes. Two departed from Boston's Logan airport. The third took off from Newark Liberty International Airport in New Jersey, and the fourth originated at Washington Dulles International Airport in Virginia.
The terrorists chose planes headed for the West Coast because they would be loaded with fuel. They planned to cripple the U.S. economy by destroying three centers of power: Wall Street, the Pentagon, and the White House.
The first two planes hit their targets. American Airlines Flight 11 crashed into Tower One of the World Trade Center at 8:46 a.m. United Airlines Flight 175 crashed into Tower Two at 9:03 a.m. Millions of viewers saw Tower Two collapse on live television. Tower One collapsed from the top down at 10:28 a.m. Tower Seven at the complex was damaged from debris and later collapsed at 5:20 p.m.
The next plane, American Airlines Flight 77, crashed into the Pentagon at 9:37 a.m. Portions of the building collapsed at 10:10 a.m.
United Airlines Flight 93 never made it to its target, the White House. At 9:23 a.m., after the World Trade Center collapsed, dispatcher Ed Ballinger texted all flights he was following, including Flight 93. He said, "Beware any cockpit intrusion two a/c hit World Trade Center." Five minutes later, the terrorists killed Flight 93's pilots and took control of the plane.
By that time, at least 10 of the passengers had talked to loved ones via cell phone. They heard about the World Trade Center attacks and figured out their likely fate.
At 9:57 a.m., the brave passengers attacked the terrorists. Flight 93 crashed into a field in Shanksville, Pennsylvania at 10:03 a.m., killing all 40 passengers and crew members aboard, as well as the four hijackers.
The Federal Aviation Administration shut down all New York City area airports at 9:17 a.m. President George W. Bush announced the terrorist attack at 9:30 a.m. Ten minutes later, the FAA shut down all U.S. airports for the first time in history.
9/11 Death Toll
The total death toll of 2,977—not including the 19 hijackers—surpassed that of Pearl Harbor in December 1941. The death toll included 2,606 people at the World Trade Center, 125 at the Pentagon, and 246 on the four planes.
What Was the Impact of the Damage?
A 2002 report from the New York Comptrollers Office estimated the cost of 9/11's physical damage at $55 billion. Of that, $24 billion is the expected income of the lives lost.
The value of the World Trade Center buildings alone was $8 billion. Computers, furniture, and cars cost $6 billion. The damage to utilities and the subway system was also $6 billion. Damage to other buildings cost $5 billion.
The city spent $5 billion to treat injuries, including those suffered by first responders who inhaled the toxic dust. It spent $1 billion to clean up the area.
Immediate Economic Impact
The stock market closed for four trading days after the attacks. That was the first time since the Great Depression when President Franklin D. Roosevelt closed the exchanges for two days in March of 1933 to stop a bank run.
The Federal Reserve dropped the fed funds rate half a point to 3.0%. The stock market reopened on September 17, 2001. The Dow promptly fell 7.13%, closing at 8,920.70. The 684.81-point loss was the Dow's worst one-day drop at that time.
Oil prices fell from $23.77 a barrel in August 2001 to $15.95 in December. Although oil prices decline in the fall, this was a sharper decline than usual. Another cause was the dollar's value which rose sharply between August and December.
Investors perceive the U.S. dollar as a safe investment during times of crisis. Send oil contracts are priced in dollars, oil exporters can lower oil prices when the dollar strengthens.
The airline industry lost $5 billion from the attacks. The four-day shutdown cost $1.4 billion alone. Passengers were afraid of flying for at least a year. As a result, 1,000 planes were parked during that time, and thousands of workers were furloughed. On September 22, Bush signed into law $15 billion in federal loans.
The 9/11 attacks worsened the 2001 recession, which had begun in March 2001. The economy had contracted 1.1% in the first quarter but bounced up 2.4% in the second quarter. The attacks made the economy contract 1.7% in the third quarter, extending the recession. Growth returned to 1.1% in the fourth quarter.
The Y2K scare had initially caused the recession. It created a boom and subsequent bust in internet businesses.
Although the recession ended in November 2001, the threats of war drove the Dow down for another year.
The Dow hit bottom on October 9, 2002, when it closed at 7,286.27. That was a 37.8% decline from its peak. No one knew for sure if the bull market had resumed until the Dow hit a higher low March 11, 2003, closing at 7,524.06.
Unemployment continued to climb until June 2003, when it reached 6.3%. That was the peak of that recession.
War on Terror
On Sept. 20, 2001, President Bush called for a War on Terror. He said, “Americans should not expect one battle but a lengthy campaign, unlike any other we have ever seen.”
Osama bin Laden was the head of the al-Qaeda organization that launched the 9/11 attacks. In its first year, Congress appropriated $29.3 billion in emergency funding for the war.
On March 21, 2003, President Bush sent troops into Iraq. He said the CIA had found weapons of mass destruction. He added that Iraq's leader, Saddam Hussein, was aiding al-Qaeda operatives. Congress appropriated $36.7 billion in emergency funding for the war in Iraq in its first year. The costs for both wars kept mounting, reaching almost $6 trillion in 2019.
The most significant economic impact of the 9/11 attacks was how the increased defense spending led to the U.S. debt crisis.
Without the War on Terror, the 2020 debt would be $20 trillion or less. That’s $26 trillion total debt, at present, minus $6 trillion. If it was $20 trillion, it would be 103% of the country’s economic output. The U.S. gross domestic product was $19.5 trillion as of the second quarter 2020. This total is still higher than the 77% debt-to-GDP tipping point recommended by the World Bank. But it's much better than the actual 133% level.
The War on Terror reduced funds for stimulus programs to boost the country out of the 2008 financial crisis. Fewer jobs were created, which meant less tax revenue and a further increase in debt. That also meant less funding for infrastructure repair and replacement.