The Skies Darken

by Llewellyn H. Rockwell, Jr.

Look, if you can bear it, at the dire straits in which we find ourselves. All evidence points to the reality that the American economy is in recession and is dragging the rest of the world down with it.

That may have been the case with or without September 11, but the attack combined with the economy-killing response by the government has clobbered our economic prospects in more ways than a column can report.

We won’t know the full extent of the setback for a few more weeks. But enough anecdotal evidence is being reported in the business press to paint a very bleak picture. We know that because of the attacks, we are at least $100 billion poorer today than last month. That’s just property damage and direct economic costs.

On top of that we have the incalculable opportunity costs of the foregone uses of the resources used in rebuilding. Then we have the $100 billion plus that government deigned to suck out of the private economy, under the guise of rebuilding and "stimulating" the economy, just like the burglar stimulates your finances by stealing your silverware.

By the end of September, unemployment claims soared to 520,000, which is higher than during the last recession, and 250,000 more layoffs were reported. This doesn’t just hit the working class. Morgan Stanley will cut 200 highly paid investment bankers. Credit Suisse First Boston will axe 760, or 20 percent of its worldwide investment banking staff. Sun Microsystems has announced 3,900 layoffs, the first ever for that company.

Airlines, which have lost at least $5 billion, have cut 80,000 jobs, and flight schedules have been slashed by 20 percent. Moody’s has downgraded credit ratings for 10 of the companies. Airlines aren’t buying new planes. In fact, Boeing, which is laying off 30,000 employees, reports delivery cancellations on 32 planes. The Congressional aid package, meanwhile, does nothing but permit them to lose money for longer than they otherwise would, at the expense of other businesses and the public.

American car makers are in a panic mode with offerings of 0.0 percent financing and dramatic cuts in marketing budgets. The hope is that the losses can be sustained until the market turns around, but this is highly speculative. Already GM will make 50,000 fewer cars this year than last.

Because people’s entertainment spending has taken a dive, revenues for restaurants and retail outlets are tanking, as indicated by the decline in sales of Coke, which is reducing its volume growth forecast. In Las Vegas, hotel occupancy rates have fallen from 90 percent to 50 percent, and plans for new hotels and construction have been scrapped. In Orlando, Florida, home of Disney World, already-low occupancy has fallen from 62 percent to 45 percent.

Revenue at Bloomingdale’s and Macy’s New York were 40 percent lower in the two weeks after the attacks. We face the prospect of first declines in Christmas sales in decades. People whose business it is to predict these things are expecting the worst fourth quarter retail earnings since 1991. Revenue at clothing and furniture stores is already down by $6 billion since early September.

In finance, there are no money-making IPOs. Wall Street revenue is expected to fall by 10 percent. Citigroup expects some $700 million in lost earnings. The falling stock market has reduced the market value of computer stocks by $75 billion in only a few weeks. Compaq and Gateway now admit they will miss profit margins by a huge amount. In the insurance industry, loss estimates range between $40 and $70 billion.

One might think that these would be good times for media and entertainment, but in fact the networks, after the attack, had to forego $700 million in commercial time and some 10 thousand commercials on six networks. Fishing for ad revenue nowadays is not easy, with so many businesses cutting back in marketing.

Oil revenue has fallen with falling demand. Drilling has dropped 10 percent. Experts say another 200 rigs will fall idle by the middle of next year. The continued recession in air travel will further reduce demand. Internationally, Zurich Financial Services says it expects $900 million in claims, while Swissair Group grounded its planes for lack of any operating revenue.

Meanwhile, we have the awful political response, which has amounted to doing what politics does best: regulating, spending, inflating, controlling, and waging war. Anyone who believes this is good for the economy is living in another universe (which sadly means most business-page reporters these days).

We’ve got a Federal Reserve that has chosen the way of the Japanese Central Bank, even though the Japanese economy remains mired in a ten-year recession with interest rates only a hair above 0 percent. It is gunning the money supply at 168% annualized. This endangers the US banking and financial system, not to mention the value of our savings.

If you want good news, the future of the military industry looks bright, just as the pyramid business never faltered in ancient Egypt. To be generally optimistic about the economy, however, means that you expect the political class to slash taxes, lower trade barriers, cut wage and other regulations, and axe public spending, while keeping money sound. Any takers?

October 12, 2001

Llewellyn H. Rockwell, Jr. [send him mail], is president of the Ludwig von Mises Institute in Auburn, Alabama.