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Panel Detail:

Monday, April 24, 2006
10:15 AM - 11:30 AM

The Economic Impact of Terrorism

Moderator:

Glenn Yago, Director, Capital Studies, Milken Institute

Milken Institute Senior Fellow Michael Intriligator offers an economic analysis of terrorism while former Sen. Gary Hart, left, listens.

Glenn Yago of the Milken Institute began the session with a synopsis of the economic effects of terrorism, which include depressed GDP growth, the destruction of physical and human capital, and decreases in bilateral trade. He noted that modern history has seen Israel endure approximately 10 percent of terrorist attacks, as well as 10 percent of worldwide terrorist casualties. Al-Qaeda leads terrorist organizations in the number of attributed fatalities and has gradually shifted its focus from political to civilian targets, which foreshadows a growth in terrorism′s global toll.

Sen. Hart backtracked, directing the discussion to the pre-9/11 era, when the Hart-Rudman Commission on National Security in the 21st Century was one of several bodies studying the domestic threat of international terrorism. He described his efforts to create a consolidated federal protective agency to internally defend domestic soil, similar to today's Department of Homeland Security. His juxtaposition of the pre- and post-9/11 American mindset with respect to terror tactics set the tone for the rest of the session.

UCLA Professor and Milken Institute Senior Fellow Michael Intriligator continued the discussion with an economic analysis of the elements of global terrorism. He suggested that the economic outcomes of terrorism were derived from supply-and-demand functions that would remain intact as a result of "substitution theory"; in other words, a clash between defensive action and a perceived demand for terror tactics would simply result in a change in the medium of attack. Innovation also plays a factor, as evidenced in the 9/11 attack, which combined two traditional tactics: suicide bombing and plane hijacking. Intriligator hammered his message home with a frightening fact: Los Angeles, especially the Los Angeles/Long Beach port complex, the biggest in the nation, is one of the country's prime targets.

Moving from economic theory to biomedical and technological application, UCLA Medical Professor Peter Katona explained how tactical convergence with integrated innovation in the form of a biological attack poses the greatest threat. Currently, the American health-care industry is not poised to act in the event of such an attack. Katona furthered his point by reminding the panel that more money is spent on biomedical lawsuits and tort litigations than the actual development of counteracting biological agents and vaccinations.

The discussion turned to practical economics when Irene Kyriakopoulos, a professor of economics at the National Defense University, ran some of the numbers included in the cost of terrorism. Currently, Homeland Security and relevant defense spending totals close to $400 billion; but hidden costs exist in health care and trade deficits.

Yago directed the panelists to the topic of solutions. All agreed that a better understanding of terrorists and terror tactics was needed; ideally, this would be followed by preemptive strikes on financial roots and command structure to prevent future attacks. As a last resort, domestic targets should be hardened to minimize costs and casualties.

Before the close of the discussion, Hart brought up the importance of America's dependence on foreign oil, arguably, the country′s Achilles' heel in the war on terror. He proposed that the country take action to wean itself off foreign oil with either alternative energy or a different supply. After fielding questions, the panelists agreed that the country's fundamental problem with respect to terrorism was the ability to respond, but not necessarily anticipate. Anticipation and understanding will be key elements in the future of the struggle against terrorism and its economic fallout.

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