September 9, 2006
Tomorrow is the fifth anniversary. Where were you when you heard?
Did you freeze or, like me, rush to the nearest television screen? Did you watch over and over again? When the second plane hit, what went through your mind?
We all remember September 11 and most acknowledge that Osama bin Laden got what he wanted: chaos in the Middle East, an exposed and profoundly weakened US and the radicalisation of possibly hundreds of thousands of young Muslims.
In the process, he handed George Bush a second election victory, giving a man without any defining traits a much-needed crusade to lead. But how else did September 11 change the US and who have been the main beneficiaries?
The economic impact of September 11 is often overlooked, but the financial and social ramifications of the attack and the subsequent shift in US economic policy have changed the US irreparably.
Letï¿½s go back to the economy that Bush inherited from Bill Clinton. George Bush came to power enjoying the largest budget surplus the US had seen in 50 years. The economy had shrugged off the worst effects of the 2000 dotcom crash. The housing market was warmish, not boiling. The dollar was stable and the current account, although in deficit, was not out of hand.
In the late 1990s – for the first time since the 1970s – the average American worker stated that his position was improving relative to the rich. Alan Greenspan had reduced interest rates to soften the fallout from the technology crash and, in short, the US was in reasonably good financial shape.
Within weeks, George Bush had responded to Sept 11 by trying to push through huge tax cuts for corporations and the wealthy. You might remember that consumer confidence collapsed after the attack and the powers acted quickly to prevent any further falls.
Presumably, the government, in tandem with the Federal Reserve, was adamant that bin Laden would not add insult to injury by prompting a recession, so interest rates were cut again. It is entirely plausible that the Fed kept rates at historically low levels for geopolitical reasons as much as economic ones – it was imperative that the economy recovered.
The combination of tax cuts for the wealthy and low interest rates ensured that the US economy did recover, but it is a very different beast now to what it was ten years ago. Americans have gone on a huge consumer binge and, cheered on by the White House, they have mortgaged their future by squandering their savings on SUVs, jacuzzis, double-doored fridges and iPods.
Personal savings have dropped to just 0.2 per cent of income, down from nearly 8 per cent in the mid-1990s.
The so-called ï¿½ï¿½prudentï¿½ï¿½ Republican administration has been spending like a shopaholic on, among other things, a war in Iraq that it canï¿½t win. As a result, it is printing IOUs like never before to pay for this carry-on. The upshot of all this is that the US is borrowing close to $2 billion a day from the rest of the world just to keep going.
Behind all these figures lies another story of the changing face of the US, which is remarkably similar to our own recent history. The consumer boom has made the US economy lopsided. When interest rates were cut, the housing market took off vigorously.
Everyone got in on the act and equity release became the common topic at dinner parties.
But something else occurred. The gap between rich and poor increased. This is not new. In the past 30 years, wages in the US, adjusted for inflation, have stagnated.
In fact, over the past 33 years, average American workers never earned as much as they did in 1973!
Through a combination of immigration, cutting benefits and the Walmartisation of large parts of blue-collar America, successive American governments presided over the increasing impoverishment of significant sections of the population.
Under Bush, this trend has worsened because he chose to cut taxes for the rich and it has been the very rich who have benefited most.
Economist Paul Krugman pointed out in The New York Times last week: ï¿½ï¿½Even households at the 95th percentile – that is, households richer than 19 out of 20 Americans – have seen their real income rise less than 1 per cent a year since the late 1970s.
ï¿½But the income of the richest 1 per cent has roughly doubled, and the income of the top 0.01 per cent – people with incomes of more than $5 million in 2004 – has risen by a factor of 5.ï¿½
As long as things were motoring along, some of these anomalies could be glossed over. But the engine is beginning to stall.
House prices are now falling across the US, the inventory of unsold houses is at a 13-year high and buildersï¿½ confidence is at a 15-year low.
The extent of the downturn will be determined by the extent to which the rest of the world wants to continue financing the US. The linchpins in this regard are Japan and China – the two biggest investors in US government debt. Overall, itï¿½s a pretty messy picture donï¿½t you think?
Five years after Sept 11, bin Laden has got a lot of what he wanted. America is weakened internally and externally. In terms of its military – as the Iranians have proved in recent weeks – no one is afraid of it any more.
Its army in Iraq looks undisciplined and disorganised and it appears to be under pressure again from a resurgent Taliban in Afghanistan. The US is still the worldï¿½s only superpower, but it has lost its mystique.
All this is very bad for us. I write as a fervent supporter of the US. I believe it is our best friend and, over the years, it has used, rather than abused, its power. Ireland has prospered with the help of the US – both economically and emotionally.
They are our first cousins, so when they lose their way, it should be of grave concern to us. A strong US is in our interest.
Letï¿½s hope that, by the tenth anniversary of September 11, it will have recovered its prestige on all fronts.