How the 9/11 Attacks Still Affect the Economy Today
What's the Lasting Damage?
The 9/11 attacks had both immediate and long-term economic impacts, some of which continue to this day. The attacks caused the Dow to drop more than 600 points and the 2001 recession to deepen. It also led to one of the biggest government spending programs in U.S. history, the War on Terror.
9/11 Attack Facts
On the morning of September 11th, 2001, 19 terrorists hijacked four planes at Boston's Logan airport.
They 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. At 10:05 a.m., millions of television viewers saw Tower Two collapse. Tower One collapsed from the top down at 10:28 a.m. Tower Seven collapsed at 5:20 p.m.
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 Tower crash, 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 the pilots and took control of the plane.
By that time, at least 10 of the passengers had talked to loved ones via cellphone. They heard about the World Trade Tower attacks and figured out their likely fate. At 9:57, the brave passengers attacked the terrorists. Flight 93 crashed into a field in Shanksville, Pennsylvania at 10:03 a.m., killing all 30 people aboard.
(Source: "September 11 Hijackers Fast Facts," CNN, September 5, 2016.)
The Federal Aviation Administration shut down all New York City area airports at 9:17 a.m. President 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. (Source: "Chronology of Terror," CNN, September 12, 2001.)
9/11 Death Toll
The total death toll of 2,975 surpassed that at Pearl Harbor in December 1941. The death toll included 2,600 people at the World Trade Center, 125 at the Pentagon and 256 on the four planes. (Source: "9/11 Commission Report," National Commission on Terrorists Attacks Upon the United States. "Official 9/11 Death Toll Climbs by One," CBS News, September 10, 2009.)
The stock market closed for four trading days after the attacks, the first time since the Great Depression. (In March 1933, President Franklin D. Roosevelt closed the markets for two days, as part of a bank holiday to prevent a run on the banks.) The stock market reopened September 17, 2001. The Dow promptly fell 7.13 percent, closing at 8,920.70. The 617.78 point loss was the Dow's worst one-day drop at that time.
The 9/11 attacks aggravated the 2001 recession, which had begun in March 2001.
The economy had contracted 1.1 percent in the first quarter but had bounced up 2.1 percent in the second quarter. The attacks made the economy contract 1.3 percent in the third quarter, extending the recession. The 2001 recession was caused by the Y2K scare. 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. It hit bottom October 9, 2002, when it closed at 7,286.27. That was a 37.8 percent 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 percent. That was the peak of that recession.
War on Terror
On September 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.” Then he put it into action.
Bush launched the War in Afghanistan to find and bring to justice Osama bin Laden. He was the head of the al-Qaida organization that launched the 9/11 attacks. In its first year, Congress appropriated $29.3 billion in emergency funding for the war. (Source: "The Cost of Iraq, Afghanistan and Other War on Terror Operations Since 9/11," Congressional Research Service, December 8, 2014.)
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-Qaida 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. By the end of Bush's two terms in office, the War on Terror cost $1.164 trillion. That was added to increased spending for the Defense Department and Homeland Security. President Obama spent $807 billion during his two terms. President Trump budgeted $156 billion. That brought the cost of the War on Terror to $2.126 trillion.
The biggest 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 debt would be $17 trillion or less ($19 trillion minus $2 trillion.) That's just 93 percent of its economic output. (The U.S. gross domestic product was $18.625 trillion in 2016.) That's still higher than the 77 percent debt-to-GDP tipping point recommended by the World Bank. But it's much better than the actual 103 percent 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, further increasing the debt. That also meant less funding for infrastructure repair and replacement.
High debt levels became a crisis in 2011, where tea party Republicans balked at raising the debt ceiling. Instead of cutting military spending, they called for severely limiting Medicare benefits. That led to the first-ever downgrade of U.S. debt by Standard and Poor's.
In 2013, they again refused to raise the debt ceiling or fund the government. It led to a 16-day government shutdown, and global fears the U.S. would default. Instead of focusing on job creation, they focused on austerity measures. That kept economic growth lackluster. For details, see U.S. Debt Crisis.