Hamish McRae: Can the great engine of prosperity be restarted?

The second day is, if anything, more bewildering than the first. It will in any case be many months before the full effects on the world economy of the events of 11 September become evident. But maybe we can begin to set a framework for understanding those effects, so we know what we might expect, where and when we should be concerned and where and when relieved.

The second day is, if anything, more bewildering than the first. It will in any case be many months before the full effects on the world economy of the events of 11 September become evident. But maybe we can begin to set a framework for understanding those effects, so we know what we might expect, where and when we should be concerned and where and when relieved.

You have to start with the world economy as it was three days ago. We were worrying about the dangers of recession, particularly the danger of a synchronised downturn, with all the main economic regions of the world coming down at the same time. We were also hoping for some kind of early upturn and we knew the string of cuts in interest rates in the US might encourage that. The key, though, was the behaviour of US consumers: would they keep spending in the face of rising job insecurity?

That question is the best starting-point. In the next few weeks, there will be such disruption to the US economy that we should ignore whatever seems to be happening. But by the end of the year, we will know just how serious the blow to consumer confidence has been. People have to live their daily lives and the US is an enormous country, so many people will feel the events of New York are a long way off. But it would be astounding if there was not some change in the behaviour of ordinary people. This is not a time for frivolity or excess.

The same considerations apply elsewhere in the world, but in less stark form. Americans were already starting to rebuild their savings and will surely continue. The rest of us will need time to think. In Britain we were, until now, pretty confident about the future, though on the Continent there was more evidence of concern. Again, we should wait until the autumn is drawing to a close before coming to firm conclusions.

Companies are run by human beings, so they too are experiencing a similar sense of shock. But unless there is a more general collapse of confidence – and that does not feel likely – expect the world's business communities to respond in a rational way. If people go on buying the goods and services they produce, they will continue to invest to fulfil those needs.

Is there some unexpected effect that will result from the devastation to lower Manhattan, home of so many financial institutions? That is something we will know in days rather than weeks. But were there to be an unexpected financial melt-down, the world's central banks will do what they always do under these circumstances: they will pump money into the system to support it. Indeed yesterday that was already happening in modest measure. Central banks, at least, need have few fears of inflation. They can cut interest rates and pump in money if a shock-induced recession seems likely.

Are there offsetting factors, forces that might actually encourage more growth in the world economy? There is one obvious one: greater spending, public and private, on security. That may not make people feel happier: money spent on defence, policing and private security guards is money not available for hospitals, schools, holidays and the like. Far better to have societies that do not have to spend money on these. But such spending does create economic activity and in the US at least, such spending will be considerable.

This leads to other shifts in the way economic activity will alter. There are some obvious types of activity that will be hit: leisure activities, foreign travel. Expect these effects to last some time. But there will also be other activities that will be boosted, aside from spending on security. My guess is that the electronics and communications industries will enjoy new demand, in some cases for products and services that do not yet exist but will be developed in response to threats, real and perceived.

Maybe, too, there will be other changes in, for example, the way we organise our businesses and our cities. Maybe companies will use the new communications technologies to disperse their people. That is not just a matter of having people in different buildings: companies may increasingly wish to have them in different countries too. We are not going to rip down all our tall buildings, but we may well build fewer obvious targets for terrorism.

The hardest thing to judge is what such an extraordinary, terrible, disturbing series of events does to the climate of international economic co-operation.

There have been the inevitable references to Pearl Harbor, the event that brought the US into the Second World War. Ever since post-war reconstruction there has been a steady progression towards the liberalisation of trade in goods, services and ideas. Something close to a common liberal commercial ideology rules in countries as diverse as China and the US, Sweden and South Africa.

But just at the moment of the triumph of market liberalism, it is under threat from the various anti-globalist forces. The riots in Seattle, Gothenburg and Genoa are testimony to that. The forthcoming annual meetings of the IMF and World Bank have been cut short as a direct result.

Now, does this direct attack on the citadel of market capitalism strengthen or weaken the system? You can see how it might weaken it by undermining confidence in our institutions. But it might have the opposite effect, by making us value what the world has created. After all, the IMF and the World Bank (plus Gatt, the General Agreement on Tariffs and Trade, precursor of the World Trade Organisation) were founded in the chaos after the Second World War.

The world financial system has been much modified, moving from fixed exchange rates to fully floating ones and, with the euro, some way back towards fixed rates again. But the big idea was intact.

Is it still? If it is, then whatever happens in the coming weeks, the world economy should pick itself up and the great engine of prosperity will resume. If not? That is not really a bearable thought at a time like this.