Beyond lives lost and wars fought, disaster’s toll keeps on rising
By
Jeffry Bartash, MarketWatch
Reuters
U.S. military amputees at an Army race in 2007. Government care of disabled war veterans could add up to an estimated $1 trillion over the next 40 years, according to a study.
WASHINGTON (MarketWatch) — In American blood and treasure, the damage done by the Sept. 11 attacks clearly has been high.
But the disaster and the nation’s response to it have also been costly in countless other ways that are still pulsing through the economy.
These costs can be seen in long lines at airports. They can be found in the budgets of private companies and government agencies that have spent vast sums to beef up security. They’re also evident in struggling industries such as tourism, whose representatives blame tougher rules for a lack of foreign visitors.
And while the full sum may never be known, the cumulative results of 9/11 have probably created a drag on U.S. growth and job creation whose impact in economic terms could persist for years to come.
“The fact is, this is money that could have gone to creating more jobs,” said Bob Pollin, an economist at the University of Massachusetts who has studied the effects of defense spending on U.S. hiring.
The biggest cost in human terms is clearly the number of American lives lost in the 9/11 attacks and in the wars in Afghanistan and Iraq. Some 3,000 people died on U.S. soil that day. And an additional 6,000 have perished so far in the wars that followed.
What’s more, thousands of U.S. soldiers face debilitating physical or psychological injuries that the government will have to pay for in the years to come.
A recent study by Brown University pegs the total costs of post-Sept. 11 actions by the U.S. at $3.2 trillion to $4 trillion — and counting.
Care of veterans, for example, could add up to an additional $1 trillion over the next 40 years, the study estimated. And interest payments on the national debt could take decades to pay off.
Much of that cost, most national-security experts believe, could have been avoided. An influential study by the global-research firm Rand, for example, shows that nearly every terrorist group in the past 50 years has largely been defeated without facing large-scale military action.
See related story on whether the U.S. has won the war on terror. “If you look at the most effective efforts against al Qaeda since 9/11, they have generally been because of covert, clandestine efforts where the tip of the spear was the FBI, CIA and special operations forces,” said consultant Seth Jones, co-author of the Rand study.
Up, up, up
Instead, the mostly military approach chosen by the U.S. led to soaring defense budgets.
After averaging less than $300 billion annually from 1993 to 2000, defense spending has shot up to nearly $700 billion in 2010. And defense spending as part of the federal budget has risen to 20% from 16% a decade ago.
The combination of higher defense spending and outlays for two wars might partly explain the modest rate of hiring during the presidency of George W. Bush.
Although the U.S. added 9.5 million jobs from 2001 to 2007, it was one of the weakest job-creation periods during an economic expansion since World War II.
Studies by Pollin and his associates at the Public Economy Research Institute suggest job creation could have been sharply higher had more money been steered into the private sector instead of the military.
While every $1 million spent by government on defense generates about eight jobs, a study found, the same sum of money creates 12 to 16 jobs in other parts of the economy such as education or health care.
The attacks didn't send the U.S. into a recession, as feared at the time. But the aftermath has meant billions of dollars in costs for homeland security and the wars in Afghanistan and Iraq. The question, WSJ's David Wessel asks: Was it worth it?
The result: As many as 1.5 million fewer U.S. jobs were created last decade because of the surge in defense spending, the institute estimates.
What price, security?
A similar tradeoff has occurred in domestic security, which has increased dramatically at all levels.
Prof. John Mueller of Ohio State University, who co-wrote a new book on post-Sept. 11 security costs, calculates the total at more than $1 trillion over the past decade.
For its part, the federal government boosted security spending by $470 billion. Private-sector companies and local and state governments spent an additional $220 billion. Add in indirect costs, such as time people spend standing in security lines, and the price tag rises above $1 trillion.
Yet the bulk of the money, says Mueller, was spent irresponsibly because insufficient effort went into figuring out if the costs matched the potential benefits. More Americans die in bathtub drownings each year, he says, than from terrorist attacks.
“We probably are safer, but was it worth spending that much money?” Mueller asked. “Spending in other areas could have had a more beneficial effect on public safety.”
Where did all the money go? Private security firms received a big chunk and some government agencies exploded in size — just look at all the new screeners at airports.
A joint study by Washington University in St. Louis and George Washington University says the federal government added more than 100,000 security jobs since 2000 to put the total at more than 280,000.
Industries in trouble
Yet those job gains have been offset by losses in other industries, some of which have suffered grievously.
Take airlines. Traffic plunged after Sept. 11 and several carriers failed, spurring the government to offer relief. While business has improved, most airlines continue to struggle. The industry has suffered its four worst years in modern history since the 2001 attack.
Tougher security, meanwhile, has shackled U.S. tourism, traditionally one of the biggest generators of U.S. export growth and a major source of domestic jobs. The industry employs some 14 million people.
In the last 10 years, tourism has largely missed out on an explosion in global travel. While the number of global travelers taking long trips has leaped more than 40%, the U.S. has seen its share grow less than 2%, according to the U.S. Travel Association.
Tourism officials largely blame what they regard as a lost decade on excessive security procedures and a cumbersome process for foreigners trying to visit.
Their industry, they say, would have created almost 500,000 jobs if tourism to the U.S. had matched historical growth rates.
“It is difficult to get a visa post 9/11,” said Roger Dow, president of the travel association. “We’ve achieved a reputation around the world of having a difficult process to get through customs.”
For all the financial costs associated with Sept. 11, however, some economists say they should be put in perspective. America has such a huge economy — $14.5 trillion in 2010 — that the U.S. has absorbed much of the cost without grave difficulty. Growth resumed within months of the 2001 attack and the productivity of U.S.workers also rose.
“The event itself and the effects on the economy was fairly limited outside of New York. You barely see it in the broader data,” says Nariman Behravesh, chief economist of IHS, a global consulting firm. “It’s a significant cost, but in a $15 trillion economy the impact is small.”
Jeffry Bartash is a reporter for MarketWatch in Washington.
