The Economics of the War on Terror

The cost of the global war on terror since the attacks of 9/11? Almost $4 trillion.

That’s almost half of what the U.S. has added in debt since 2001:


Without the war on terror, America’s national balance sheet would look much healthier.

So has it been worth it?

America’s free spending national security hawks, frothy at the mouth, might say yes.

But the deeper reality seems to be that terrorism is a relatively small — and some would say negligible — threat:

The chronic exaggeration of U.S. national security threats also extends to the security of individual Americans. Since 9/11, a total of 238 American citizens have died from terrorist attacks, or an average of 29 per year. To put that in some perspective, according to the Consumer Product Safety Commission, the average American is as likely to be crushed to death by televisions or furniture as they are to be killed by a terrorist. A recent study from Duke University found that, since 9/11, eleven Muslim Americans were involved in active terrorist plots in the United States, which killed thirty-three Americans. Over that same time period, there have been nearly 150,000 murders and over 300,000 suicides.

So should we declare war on people being crushed to death by televisions and furniture?

Most tellingly, from 1980 to 2005 only 6% of all terrorist events in the U.S. was Islamist in nature:

The spectacular imagery of 9/11 blinded American policymakers. Whether it was a case of guilt as a result of their failure in spite of the warnings to protect America, or whether it was that the events of 9/11 became an excuse to exercise preconceived (and in my view ill-conceived) foreign policy objectives, policymakers matched the spectacular image of 9/11 with an equally spectacular spending spree.

And yes — America has not been hit by a spectacular terrorist attack since. But it hadn’t really been hit by a spectacular terrorist attack before. 9/11 was  — whatever your wider view of the incident — a black swan event: high impact, and unprecedented. And the problem with black swan events is that very often they are not repeated, and so spending money to prevent future occurrences is more or less a waste of money.

America faces a whole swathe of real risks far far bigger than international terrorism including derivatives contagion, global trade fragility, climate instability, and electromagnetic pulses. We don’t know what the next calamitous black swan event will be. But I’m pretty sure that a whole boatload of money will be spent on preventing it after it has happened, just as trillions have been wasted on preventing jihadist terrorism after it has already done the damage.

And the biggest problem here is the spending. $4 trillion of productivity was wasted. Keynesian multipliers are irrelevant — the money would surely otherwise have still been spent, and on more productive and useful endeavours. That’s a pretty big opportunity cost.

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25 thoughts on “The Economics of the War on Terror

  1. Pingback: The Economics of the War on Terror Read… « zumoit

  2. On 9/11, sitting in Honolulu, watching the planes on television crashing into the World Trade Center, and hearing of the government’s reaction I said to my family and friends, what is the government doing alarming the people to such a state, Bush should be in New York City calming people, not hunkering down in a bunker. This is a one time deal, not the first wave of a sustained attack on mainland America. But when I drove to the airport through the security cordions that day, I realized that a hysteria was settng in that the government itself was exacerbating. And that we would pay out fortunes to counter a threat of quite limited scope. Nothing much one could do, then,, and since. People were determined to be fools.

  3. “Without the war on terror, America’s national balance sheet would look much healthier?”

    Not really. Without their modern crusades, USA would have lost control of oil a long time ago, and that would be an even bigger shock for the US economy (and all of Western imperialism for that matter) than “just” those 4 trillion $.

    The only thing preventing the oil states from rejecting the dollar right now is the threat of being attacked by the USA if they do. No (threat of) war = no control of oil = major breakdown

    • U.S. (as well as North America) has a lot of domestic oil. My hypothesis is that with less overseas spending, more money would have gone into developing domestic supplies, including things like shale oil.

    • Do you feel that using the American military as the enforcers of dollar hegemony is an appropriate use of our national defense resources? Do you feel that the cost of funding these “wars” against anyone who even thinks about not accepting U.S. dollars as payment for oil is just? Is not an agreement between a willing buyer and seller to make an exchange at an agreed price without coercion the very basis of laissez faire capitalism? When our dollar is backed by nothing but the force of the American military, have we not abandoned the very principles upon which the republic was supposedly founded?

      “Patriotism is no substitute for a sound currency.” — Grover Cleveland

      • Do you feel that using the American military as the enforcers of dollar hegemony is an appropriate use of our national defense resources?

        No, I think it’s a waste of productivity.

        When our dollar is backed by nothing but the force of the American military, have we not abandoned the very principles upon which the republic was supposedly founded?

        Yep.

      • This is a lightbulb moment. The USA is a terrorist nation. Can’t the United Nations step in?

        Oh I forgot. The UN is the USA.

        Back to the TV.

  4. This is a really good analysis and sums up the root cause of a lot of our problems.

    One minor critique regarding the pie chart showing perpetrators of terrorism. By itself it communicates something that isn’t true. Based on that pie chart, we should be building a mile high fence on our southern border and rounding up all the latinos and shipping them out (some would surely say). But looking at the underlying data from the FBI you see that that 28% of “terrorist” incidents for the time period occurred in Puerto Rico. Those latino terrorists are predominantly Puerto Rican separatists from the early 80’s. The source of the chart you link insist that 94% of terrorists “aren’t” Muslims which is a very bad use of tense. Believe me, I’m not pro-war, especially on terrorism and I’m not anti-Muslim, especially “because they are all terrorists”. But this chart is very misleading.

    Otherwise, I agree with your analysis and the ridiculousness of our foreign policy in response to a black swan event. Of course, the war hawks will insist that the reason we haven’t had another attack is because we “took the fight to them.” Which is absurd.

    • Yeah. Thanks. I agree the pie chart is the weakest part of the piece. I just threw it in because I find it interesting. More interesting still is that within the European Union, Islamic terrorism makes up an even lower figure of 0.6%. So the “low” U.S. figure is an order of magnitude higher than Europe. Of course, Europe’s figures are dominated by Basque separatists and the communist left. I suppose it comes down to the different forms of terrorism that different groups favour, and ultimately to the definition of terrorism. Jihadists prefer high impact, other groups tend to prefer low impact. But all the high impact and low impact stuff combined is still less damaging to people and property than furniture falling on people.

  5. “And the biggest problem here is the spending. $4 trillion of productivity was wasted. Keynesian multipliers are irrelevant — the money would surely otherwise have still been spent, and on more productive and useful endeavours. That’s a pretty big opportunity cost.”

    I agree. However I assume that the ruling elites do not want a society where the ordinary mass of people benefit. Welfare to the rich, corporate defence contractors keeps the hierarchical society in place. If money trickled down to the masses raising their standards, hierarchy would erode and the foundations of the power of the ruling elites would shake, the American system needs war and enemies to continue…yet there are inherent contradictions within the system.

    • Well the common masses have greatly materially benefited in the last hundred years. In terms of lifespan we are living longer, in terms of material possessions (e.g. property ownership, car ownership) we tend to have much more, and we have things like the internet.

      I suppose the key regression in the West is in terms of civil liberties.

  6. So basically after the US spent billions in Vietnam and lost the War, went off the Gold Standars and printed money to fund the economy, US Debt has blown out.

    By default the USA has now been in decline for 40 years. I bet this correlates with the rise of the 1% who have access to this printed cash, and a decline in real wealth for the middle class.

    • I bet this correlates with the rise of the 1% who have access to this printed cash, and a decline in real wealth for the middle class.

      It does.

  7. Would the “Other” in the Pie Chart represent Right wing extremists?

    What about Christian Fundamentalists?

    From now on I am going to generalise with sweeping statements that all Politicians and their over paid advisors are idiots. Eventually this Propaganda will sink in, and the masses may “hunger” for a new system.

    Right now they are confident the Government is in control because the Government Manadarins have an “education”.

    “Government workers = Overpaid idiots”

    Wash – rinse – repeat.

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  13. The article makes one good point and one bad one. Yes the war on terror is a huge waste of money, and is a power grab by the US government in its efforts to create a police state. The second point using tortured crime stats to prove Muslims are harmless is less clear. The fact that few attacks are in the US proves the first point. To say it means Islam is harmless does not hold true when looking at the rest of the world. Check out the website “The Religion of Peace” to see all the love Islam is spreading around the world.

    • Radical violent Islamism is not harmless. But neither is radical violent Judaism, or radical violent Christianity, or radical violent Hinduism, or radical violent atheism.

      I agree with Ron Paul: they wouldn’t be attacking us if we weren’t occupying them.

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