The dismal science shows why resilience after Paris matters
The one cry that has undoubtedly fallen on deaf ears in the last seven awful days since the Paris terrorist outrages has been: “Let me through, I’m an economist.”
It is not for no reason that economics is known as the dismal science, and clearly rushing for a slide rule and calculator after 130 people have been slaughtered in cold blood could appear tasteless.
But the reality is Daesh - like the French I refuse to use IS or similar as it is neither Islamic nor a state - has the economy clearly in its crosshairs when their operatives press the trigger on their Kalashnikovs or pull the detonation cord on their vests.
The attack on the World Trade Center on 9/11 in 2001 sought to destroy Wall Street, the tube bombings on 7/7 in 2005 aimed to terrify people from coming into the centre of London, and the attacks on Paris sought to destroy the night-time leisure economy of the world’s most popular tourist destination.
The multi-headed hydra of terrorism seeks to sow discord between citizens, undermine faith in government, provoke politicians to embark on foolhardy acts of revenge and instil a fear that the next attack is around the corner.
It does all those things but it also seeks to undermine the economic fabric of the nation and weaken the incomes, business turnover and government revenues that are part of modern Western society.
This is why economic resilience is as important as civic solidarity. The good news is that recent experience tells us that homo economicus reacts with a cool head. That is not to say we do - or should - rush out and embark on an irrationally exuberant spending and borrowing spree.
But it should remind us that keeping calm and carrying on means continuing to commute to work, do the weekly shopping and find time for the evening in the cinema, restaurant or pub.
So what, as economists like to ask, do the data show? According to analysis by Holger Schmieding, the chief economist at the German bank Berenberg but who lived in London for many years, people have tended to carry on as normal - in economic terms at least - after each outrage.
After the 7 July 2005 bomb explosions in London, consumer spending rose by 0.7% over the three months to September compared with the previous quarter and in line with the average of the previous four quarters. Consumer confidence actually rose in July.
Following the attack near Madrid’s Atocha train station in March 2004, Spanish consumption growth actually rose by 1.2% in the following three months, reversing a fall in the previous quarter. Finally, spending at the 9/11 attacks jumped by 1.5% in the final three months of that terrible year.
CARRYING ON AS NORMAL IS THE BEST WAY FOR US AS ‘ECONOMIC AGENTS’ TO STICK TWO FINGERS UP AT DAESH
Governments will often spend more on security and policing. President Hollande of France has pledged to create 7,500 new police, customs and justice positions and to cancel planned cuts of 10,000 armed forces jobs. Italy’s government has also announced the cancellation of planned defence cuts and an extra €120m of spending.
Central banks can cut interest rates to put a floor under decline in activity - something that the European Central Bank is now even more likely to do next month.
Ministers and central bankers, particularly in France and the eurozone, will be studying the new data to spot signs of falling consumer and business confidence, falls in the numbers of tourists and holiday-related spending.
The reality is that the impacts of the attacks by Daesh and al-Qaida pale into significance compared with the global recession that struck most western economies after the huge bubble in financial speculation finally burst in 2007.
One of the most significant impacts from the global financial crisis was the collapse in global trade as the financing needed to underwrite international shipments dried up after banks realised they had no idea where the financial risks lay.
Hopefully countries will continue to trade with each other despite this latest outrage, which should do little to dent the pipelines of global commerce.
Economic life carries on and in two weeks’ time ministers, officials and some leaders from the world’s countries will assemble near Paris’s Stade de France, one of the scenes of the attacks, to forge a deal to limit the growth in global warning - an even more significant threat to the world than terrorism.
Meanwhile we as consumers and businesses should carry on as normal. It is a small gesture but the best way for us as “economic agents” to stick two fingers up at Daesh.
About the author
Phil has run Clarity Economics, a London-based consultancy, since 2007 and, before that, was Economics Correspondent at The Independent.
Phil won feature writer of the year Work Foundation Work World media awards in 2009, and was commended by the Royal Statistical Society in 2007.
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