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September 13, 2006

JUST A FEW MONTHS AFTER 9/11, Osama bin Laden boasted that the attacks had "hit hard the American economy at its heart and its core." If they did, the effect was transitory. In all the commemorations and assessments on the anniversary of 9/11, the resilience of the U.S. economy has attracted less notice than it deserves.

Bin Laden was not alone in his analysis. In the United States, there were warnings of burdensome security costs, sharp business cutbacks and recession on the horizon. Some estimated that the immediate cost of the attacks -- including lost life, property and economic output -- would approach $170 billion. The longer-term effects, they implied, were almost unimaginable.

Then Americans enjoyed five years of strong productivity and corporate profits, a booming real estate market and rising trade volumes.

It's tempting, and to some degree justified, to chalk up the apparent success to some inherent superiority of the U.S. economy. A recession was already underway on 9/11, but Fed policy and tax cuts fueled a strong recovery. According to a recent report from the World Trade Organization, globalization continued apace, as most major transnational corporations said they would not delay or cancel investment projects in reaction to worldwide terror.

Although private- and public-sector security spending ballooned to $90 billion last year -- in a $13-trillion economy -- technology had already created efficiencies in U.S. businesses that offset many of the new costs. Entrepreneurs found ways to profit from the security-industrial complex.

Meanwhile, sectors hit directly by the attacks, such as travel, bounced back. Analysts estimate that airlines lost about $40 billion and 150,000 jobs in the wake of 9/11 as passenger traffic plummeted in 2001 and 2002. But last year, a record 670.4 million passengers flew on U.S. carriers.

Another terrorist strike, in the U.S. or abroad, could still do untold damage to the economy. But nowadays economists tend to be less concerned about such a possibility (or unnecessary spending to protect against it) than about high energy costs or a real estate bust. Both would be worrisome, of course. But those kinds of worries are in a whole different category than the fear of a terrorist attack.

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