Terrorists have caused carnage with their attacks on Western capitals in recent years, but they have failed to seriously damage the capitalist economies they revile.
Financial markets steadied quickly after the terrorist bombings in London yesterday in large part, analysts said, because the attacks are likely to have little or no impact on the British or U.S. economy.
Spain's economy slowed slightly and then rebounded quickly after the Madrid train bombings in March 2004. And the U.S. economy was already in recession when al Qaeda attacked the Pentagon and the World Trade Center on Sept. 11, 2001, but it started expanding again soon thereafter and is now growing at a healthy pace.
Groups saying they have ties to al Qaeda also claimed responsibility for the Madrid and London bombings. Such attacks inflict serious costs in human and economic terms. They cause horrible losses of life, destroy property and infrastructure, drain insurers' coffers and impose heavy security costs on governments and businesses. They shake consumer confidence and are often blamed for corporate caution in hiring and investment.
But ultimately, the U.S. and Spanish economies proved resilient enough to absorb these blows. Britain's probably will, too, analysts said. One reason, they said, is that the attacks in America and Spain were not followed by more al Qaeda actions in either country.
"If the attacks [in London] turn out to be isolated, then calm should return quickly," economists at Goldman Sachs U.S. Economics Research wrote in an analysis yesterday. "That is what transpired following the Madrid train bombings in March 2004."
The U.S. government's response to the 2001 attacks also provided extra stimulus to an economy that was then very weak.
The economy had slowed sharply after the late-1990s stock bubble burst, contracting slightly in the summer of 2000 and again in the first three months of 2001. After the Sept. 11, 2001, attacks, U.S. commerce nearly froze as the stock markets were closed for several days, airlines were grounded, hotels emptied, businesses stopped hiring and many consumers hunkered down at home.
The Federal Reserve, which had already cut short-term interest rates deeply that year in response to the slowdown, responded to the attacks by lowering rates even more, providing cash to the markets and cheap money to consumers. Those low rates helped fuel continued growth in household spending on cars, housing and other things.
Meanwhile, the White House and Congress boosted federal spending on the military and homeland security. Last year, U.S. federal defense expenditures increased to an amount equivalent to 4.5 percent of the nation's economic output, or gross domestic product, compared with 3.9 percent in 2001. Local governments, airports and ocean ports spent more to protect themselves.
The economy contracted again in the third quarter of 2001, and a panel of economists later determined that the nation had been in recession from March through November of that year -- although one of the mildest on record.
The economy has grown continuously since late 2001, propelled primarily by consumer spending.
The threat of terrorism still drags the U.S. economy in various ways, analysts note.
Oil prices remain high in part because of continued fears that tight supplies could be disrupted by terrorist attacks on refineries and pipelines.
Businesses have remained relatively reluctant to hire and invest aggressively ever since the Sept. 11 attacks created a sense of economic uncertainty, said Richard A. Yamarone, director of economic research at Argus Research Corp. "That hasn't changed."
And the extra spending on defense diverts money that could otherwise be invested by private businesses in ways that would raise living standards in the long run, said Nariman Behravesh, chief economist of Global Insight, a research firm.
Even so, the U.S. economy shrugged off such concerns and grew a robust 4.4 percent last year. And several economic worries born right after the 2001 attacks proved unfounded.
Many economists then feared the United States would turn inward, putting the brakes on globalization by putting up trade barriers or pulling back from overseas commerce. On the contrary, the process of integrating the world's labor, financial and goods markets has accelerated in the past four years.
Analysts also predicted then that soaring security costs would slow the growth of productivity, or output per hour of labor, the key to rising living standards. On the contrary, productivity growth has been unusually strong for several years.
The threat of terrorism has added to the cost of doing business, Behravesh said, "but not enough to do any serious damage to the global economy or the process of globalization."