FROM 9/11 TO THE 911 ECONOMY

The 10th anniversary of the attack on the twin towers of the World Trade Center has stimulated commentary and debates in different forms of media. The causes and consequences of the attack are subject to controversy and conspiracy, based on different interpretations of history and politics. The other controversy surrounds the replacement of the Twin Towers at “Ground Zero” by a new set of six towers, at an estimated cost of $100bn. This appears to be emblematic of the current Mad Hatter’s Tea Party that is the present global economy and whose trajectory seems to stem from the tragic events of the 11th September 2001.

911 is the phone number for emergency services in the US and the current parlous state of the global economy suggests that we are living in an emergency economy. Calls to the economic emergency services (The G20 countries, US Fed, the ECB and other central banks, the IMF and national finance ministries) go unanswered because of system overload, as the edifice starts to crumble and fall. Can the shock and awe and accompanying psychological trauma of the tragic events a decade ago, explain this current imbroglio?

In the aftermath of the dot.com boom giving way to the dot.bomb bust, US interest rates were lowered progressively until 9/11 when with fear bordering on panic rates were slashed, as shown below. The “Black Swan” moment of the attack of the Twin Towers turned risk into uncertainty for the global economy. With a seemingly near-permanent reduction in the cost of capital, riskier assets were sought by financial institutions to generate greater returns. The ensuing financial bubble was pricked when pretty rapid rate rises generated the conditions for the sub-prime mortgage crisis and ensuing financial crisis and recession.

This story needs no re-telling, but the simultaneous pursuit of the security state by the military-industrial complex generated an estimated $3 trillion worth of public expenditure (around a fifth of national income), thereby limiting fiscal discretion in managing the economy. Paradoxically the war on terror had been turned into a war on the economy as the only defence left was to “push on a piece of string” of a liquidity trap by lowering interest rates to near zero. That is, at these levels there is no incentive to invest because of expectations of economic recovery and greater returns is very low. The Quantitative Easing (QE) programmes (Q1, Q2 and possibly Q3) seem like a production line of ocean liners whose fates are akin the Mary Celeste and the Titanic: a ghost ship and one fatally holed by an iceberg.

With the economics and politics of austerity being pursued with quasi-religious zeal as public debt is declaimed as the source of evil, the global economy appears to be heading for its own ground zero. Ironically, the world’s economic emergency services could take a lesson from the re-building of the area around New York’s “Ground Zero” to signify revival and recovery. In other words, increased public investment as part of a growth strategy to stimulate demand, output and employment. Such a strategy  would thus publicly demonstrate that the historical lessons of 911 tragedy are not lost in farce.

The problem is that in the 911 economy, the economic emergency services are fighting new challenges with old and outdated equipment .When The Police produced  Message in a Bottle in 1979 they sang “I’ll send an SOS to the world”.  By  refusing to break the glass and read the message, these services are doing us all great and long-lasting disservice.