How Badly Did Friday’s Manhunt Lockdown Hurt Boston’s Economy?

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CJ GUNTHER / EPA

A resident watches as police search an apartment complex in Watertown, Mass., April 19, 2013

“Almost every business is closed,” wrote TIME contributor Eben Harrell as he walked around Boston on Friday afternoon. “The ‘shelter in place’ guidance has essentially shut down a major American city.”

These comments naturally raise the question of the economic costs of Friday’s manhunt and the resulting lock-down of Boston and it’s nearby suburbs. Even before they began waking up Friday morning, area residents were being instructed by police and public officials to remain in their homes and not go to work. Photos of the city taken throughout the day show an eerily abandoned urban landscape in which virtually all commerce — or at least all retail commerce — had stopped.

It should go without saying that the human costs of the Boston Marathon bombings and their aftermath are paramount. But it makes sense to consider the economic costs as well. For one thing, the last effective acts of terrorism on U.S. soil, the attacks of September 11, 2001, were very intentionally aimed at the brain center of American commerce and designed to wreak economic as well as physical damage.

(MORE: What Motivated the Boston Marathon Bomber Brothers?)

What’s more, none of us like the idea that the effects of Monday’s bombings can easily be sent rippling outward from those directly harmed by the explosions to the wider community. Broad and deep economic damage may just inspire other would-be terrorists to try their luck at wreaking havoc.

In this respect, it is somewhat comforting to learn that though the dollar cost of Friday’s manhunt and city-wide work stoppage is considerable, the economic impact — even in the short term — will be minimal. “Based on past experiences, the city and the surrounding area will bounce back,” says Craig Johnson, president of Customer Growth Partners, a consulting firm that, among other things, offers forecasts for how retailers fare after natural disasters and terrorist attacks. “We don’t want to assume to know exactly how this will play out. But within a week or two, things will probably seem somewhat back to normal. People will be shopping on Newbury Street.”

(PHOTOS: Images of Boston’s Massive Manhunt)

Many small businesses obviously felt an impact immediately on Friday. Four of Dependable Cleaners 16 Boston area locations were shut down, including its two largest stores. The company’s laundry delivery services were affected too, because seven of the 30 towns it serves—including the biggest, Boston—were closed to drivers.

Christa Hagearty, president and CEO of the business, estimates that Friday’s shut down cost the company around $40,000. “I feel guilty even mentioning it, but yeah, this hurts us,” she said. “We’re a dry-cleaning company, and all the typical needs of using our business—going to work, going to dinner, or the theater or charitable events—they’re all gone. We’ll probably feel the impact over the next few weeks.”

Hagearty says that other businesses will have an even tougher time. “We may have multiple stores,” she says, “so this is easier for us to handle compared to, say, a restaurant that just has one location.”

Experts have pointed out that there are all sorts of other economic activity that depend neither on foot traffic nor on people sitting at their office desks at a particular time. Jim Diffley, chief regional economist at IHS Global Insight, told MarketWatch that the greater Boston area generates around $1 billion in economic activity each weekday. But he noted that countless workers are capable of putting in a full day of work from home on their computers. “Telecommuting is a huge thing these days,” he said.

Plus, Diffley told MarketWatch, work that might have happened on Friday could instead get done over the weekend or early next week. “So the job is still getting done, just on a different day.”

Of course, certain categories of activity do depend on customers and workers being in certain places at certain times. “Restaurants are like airline seats,” Johnson explains.  “Once the flight takes off, or a meal takes place, the business can’t make it up. So restaurants will take a hit from this. Business trips are being cancelled, too.”

(MORE: Going Door to Door: Logistics of a Manhunt)

But he’s convinced that even restaurants and other tourist-driven businesses will ultimately feel little lasting effect, even in the short term — and could bounce back from this episode stronger. “Everyone has seen how fantastic the people have been in Boston, all the wonderful things people have done to help,” Johnson says. “In the short term, in a crazy way, this could even enhance Boston’s position as a favorite city for vacations, visiting, and shopping.”

Looking out longer term, there are reasons to think the cumulative economic effects of terrorism in general – and even the threat of terrorism – could prove significant. Economists Brock Blomberg, Gregory Hess, and Akila Weerpana in 2004 published a study finding that a terrorist attack in a country reduces economic growth on average by 0.57 percentage points.

Economist James Barth of the Milken Institute has also studied this issue extensively, and says that economic affects of terrorism can be widespread even when the manifestations aren’t obvious. One effect of terrorism is the loss of human capital. It may seem insensitive to talk about death in economic terms, but human beings are the most important drivers of economic growth. “Modern companies like Microsoft, Google, Facebook – they’re biggest assets aren’t buildings or factories. It’s all people,” says Barth.

Another big factor making up the economic effects of terrorism is the diversion of resources. Barth estimates that from 1976 to 2007, the U.S. government and U.S. firms spent $7.3 trillion defending the Persian Gulf from terrorism and other dangers. Absent terrorism, that money could have been productively spent elsewhere.

(MORE: How Boston’s School Websites are Reacting to the Manhunt)

Measures taken, especially since 9/11, to protect us from terrorism also slow down the economy, Barth says. Travellers must spend more time waiting in security lines in the airport; resources must be spent screening packages; and federal and local governments must divert more of their resources towards security.

But a significant portion of these costs have been with us since 9/11, and aren’t likely to go up because of this week’s events in Boston. “Bottom line, the areas that are hit almost always bounce back, and sometimes quite quickly,” Johnson says. “These kinds of events don’t destroy demand; they tend to displace demand, and the impact is short-lived.”

1 comments
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piter

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