The Question of Citizen Confidence

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Wall Street will resume trading Monday morning at 9:30, just like the week before this one. And there is a growing expectation for at least a rational response to the catastrophes, a selloff based on numbers and not naked fear — and even more likely a market taken patriotically under its wing, protected, by its biggest players. Traders might even stage a patriotic rally, a show of defiance that capitalism’s footsoldiers would not be employed in its destruction.

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But that reaction will be measured in hours or days; what of weeks, of quarters, of years? If the minute-to-minute orchestration of Tuesday’s attacks — down to the staggering of explosions that let news crews set up for the money shot — was impressive, the macroeconomic timing of America’s worst day in memory was such that it might have planned not by Osama bin Laden but the Seattle anarchists.

The U.S. economy was, before this happened, on the very verge of slipping into a documentable recession — and taking the rest of the world with it. Europe’s economic growth was anemic, Japan’s nonexistent, and now the American bulwark upon which the globe has relied for the past decade has had a literal and figurative hole blown in it.

Early estimates of the cost of Tuesday’s disasters already approaching the $20 billion mark, and the cost in human capital in the world’s financial center is all but incalculable. Insurance companies face staggering claims, and for airlines the unprecedented (and ongoing) total stoppage of all air traffic that began Tuesday will likely be too much for many carriers to recover from. With GDP growth in this August-October third quarter already expected to be at or below zero, the events of Tuesday alone will likely be enough to send the U.S. economy across that line into contraction.

There is a chance that this wound comes with its own tourniquet, and not just in the normal balancings of capitalism. (Insurance companies, for instance, will enjoy skyrocketing rates next year; New Jersey is likely to be the new home for many a displaced and dispirited business.) Money, with all its multipliers, is on the way.

Congress prepared Thursday to hand a stack of blank checks to President Bush, who promised to "spend whatever it takes" to rebuild the shattered parts of his nation. Certainly the debate over whether to dip into the Social Security surplus is a faint memory. Infusions of government funds into industries like defense and security are likely in the near future.

War is good for the economy, and so is disaster; and if the immediate financial shocks send third-quarter growth below water, the fourth quarter of 2001 — and the first of 2002 — could be sufficiently inflated by the U.S. government’s spare-no-expense drive to get America and its institutions as close to normal as quickly as possible.

The Fed is already pumping emergency liquidity into the banking system by a hundred times its normal daily dose. A deep Fed rate cut is likely; a capital-gains tax cut might be on the horizon. And some Wall Street analysts are raising the possibility that capital spending from businesses — whose pre-explosion problems may seem a bit less serious now — could follow. If this is indeed a new world, some may be moved to take this opportunity to invest in it. Certainly the forces of rebuilding, of renovation are economic engines of their own.

But the most serious — and at this point, least calculable — threat to the U.S. economy comes from within. Compare September 11, 2001 to Pearl Harbor, compare it to D-Day, compare it to the Gulf War or the War of 1812. But the fact is the U.S. has never endured a catastrophe that was so many parts fear and so few parts comfort. Never a war without an enemy, never one waged with our own planes. Never one that has so much potential to reach straight into the heart of its citizens. Its consumers.

We have gotten a glimpse of this already, and not just at the $5 gas pumps. September has already lost two full days of retail sales, and every day spent mourning vicariously in front of a television is a day not spent at the mall — the Gulf War did the height of its economic damage merely by constituting weeks of irresistible viewing. Inevitably, people will realize that their personal situations have not changed — they still need a new car, a new refrigerator, the new Bob Dylan album. But in the areas of consumer spending that are the first to suffer from a tightening of the belt, the psychological effects could linger long after this news story releases Americans from their living rooms.

New York Mayor Rudy Giuliani promised Wednesday that the hole in the Manhattan skyline would someday be filled again. Wall Street will get back to business, and before long the irrepressible nature of investing will have filled the holes blasted in its own confidence. But in a way we have not had to deal with during this boom-and-bust decade, public worries about the economy have to do with much more than the just "the economy."

As bomb threats and evacuations rippled through everyday populus loci like Pennsylvania Station and Time Square on Wednesday night and salarymens’ midtown spires in a freshly repopulated midtown on Thursday, New Yorkers, at least, are getting a look at Phase Two.

There is a creeping fatigue that comes when one begins to contemplate the copycats with suitcase bombs and ideas of remote fealty to the cause that struck at us Tuesday. Will that spread across America, and will it last?

When the U.S. must suddenly wonder if it has joined the same embattled class as a far-away terror zone like Israel or Northern Ireland, how long until American shopper can begin to feel frivolous again? Before Tuesday, this tenuously surviving economic expansion was endangered by Americans’ vague fear for their jobs — what now, when they may vaguely fear for their lives?

We are about to find out.

But if fear is bad for the economy, patriotism is good for it, and so is the sheer simplifying philosophics of survival. How many petty problems seem smaller now, how many reasons small fears, are now swept aside forever? After all this, Americans have a thousand reasons to be afraid, as many to be proud, and as many to breathe the air and resolve to personally make the American Way — part liberty, part shopping — bigger and stronger than ever.

There is but one substitute for consumer confidence, and that is citizen bravado. And the way of economics is that it can breed its own rewards.