Even before the September 11, 2001, airline attacks in New York and Washington, the U.S. economy was in a mild recession. The attacks intensified the recession, especially in tourism- and travel-related industries, as well as the stock market. Airline and aerospace industries laid off 100,000 workers immediately. Uncertainty and a significantly reduced wealth effect due to the depressed stock market discouraged consumers from buying durable goods. How can we restore and stimulate the depressed economy after the attacks? Here are some suggestions.

First, the government should provide funding to increase consumer and business demands. Although the president received an authorization for spending $50 billion in emergency expenditures, of which $15 billion was earmarked to assist the airline industry, many economists believe that the adequate stimulus would be a public assistance of $100 billion per year for the next three years (2002-2005). Part of these funds could be used to subsidize workers who are unemployed as a consequence of the September 11th disaster. These public expenditures would not result in a total leakage out of the economy. Higher national income from the stimulated economy due to the expenditures and the resulting income and tax revenues thereof will make up a significant part of the public expenditures).

Second, a tax cut either through payroll taxes or a tax rebate should bolster consumer demands. In order to provide a tax rebate to those who will immediately use the rebate for consumption(i.e., those people with a marginal propensity to consume that is equal to1), the tax rebate should be given to all people including the low-income households who do not pay income taxes but do pay payroll taxes. In other tax rebates issued in the past, the people who do not pay income taxes were excluded from receiving the rebate because the main objective of this type of rebate was to reduce the tax burden, not to stimulate the economy by providing the additional purchasing power to average consumers.

Third, a reduction in corporate income taxes is needed to increase corporate profits. Higher corporate profits not only stimulate new investments, but also encourage financial investors to purchase more stocks of companies with higher profits. Higher stock values increase net asset values of corporations, which not only stimulate further investments of these firms, but also increase the wealth effect of consumers who own their stocks, and this will encourage their consumption further.

Finally, in this global economy, stimulating the American economy alone may have a limited benefit. To maximize the effect of stimulation, we have to encourage foreign countries to increase their imports from the U.S. This, in turn, requires invigorating the world economies as well. For this purpose, it is important for leaders of the industrialized countries to coordinate their economic policies for mutual economic enhancement.