How Much has Osama bin Laden Cost the US?

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Depending on what you want to count, Osama bin Laden in the past decade since 9/11 has cost the United States anywhere from $280 billion to well over $5 trillion. Why so big a range?

You can pretty much blame all of our nation’s economic woes on Osama bin Laden. Don’t believe me? Try this one on for size: Bin Laden caused the financial crisis. Right after 9/11, the Federal Reserve lowered interest rates in order to boost the economy in the wake of the terrorist attack. In a search for higher yields investors began to buy up subprime mortgage bonds. In order to create more high-yield bonds, lenders made loans to riskier and riskier borrowers, who drove up housing prices and created the bubble. Eventually, many of those borrowers couldn’t pay their loans. The bonds start to go bad. Lehman goes belly up. Financial crisis on.

Of course, to accept that you would have to believe Bin Laden was more at fault than the investment bankers who set up the bonds that failed, or the regulators who let it happen. I’m not sure I buy that, which is why I am dubious of some of the kitchen-sink analysis of what Osama bin Laden has cost the nation. In a nicely written piece, Ezra Klein says the war that bin Laden waged against the US was in large part an economic one. He was trying to bankrupt us, and force an outcome much like what happened with the USSR and Afghanistan (doesn’t Regan often get credited with that one?). I’m not sure I fully buy that. Osama seemed bent on killing people, as many as possible. And when that didn’t work out, I think he may have fallen back on hoping his plan B, get the Americans to spend money they don’t need to, might work. But with interest rates still near their historic lows, meaning the US is still able to borrow money relatively easy, it doesn’t appear that bin Laden was successful on that front either.

Still the world’s worst terrorist did get us to spend a fair amount of money. The best, non-kitchen sink analysis that I could find on the cost of bin Laden, excluding wars, is by two political science professors, John Mueller of Ohio State University and Mark Stewart of The University of Newcastle in New South Wales. Their conclusion is that the United States government and private companies spent a little over a trillion dollars on enhanced homeland security since 9/11.

Even that could be a little high. Certainly, the government spends much more on homeland security than it used to. Government spending on homeland security has jumped to $73 billion from $20 billion back in 2010. But to get to $1 trillion cumulatively spent over the past decade the two professors have added some other more squishy measures. Average airport wait times have increased by about 20 minutes since the start of new enhanced security measures. The two professors figure that average wait time costs us all about $10 billion a year, which I guess is the measure of economic activity that doesn’t get done because we are standing on line. Although if you factor how much earlier we have all tend to get to the airport in anticipation of the wait, then that number might be larger.

But you have believe that most of us are productive all the time, and I’m not so sure about that. For me, my hours right before a plane trip are usually spent sleeping. So not very productive. Of course, if you were to compute how much lost sleep time due to air travel has driven up health care costs then I guess you could also get to a large number that way.

One of the largest items in the professors’ analysis is something called “deadweight losses of consumer welfare.” And it rings in at a cost of $245 billion over the past decade. Impressive. The professors say that category includes the losses of economic activity we have had from the increase in taxes needed to pay for all the additional security measures. But it’s my understanding that taxes have fallen, not increased in the decade since 9/11, so I think it’s hard to say that higher taxes has curtailed economic activity. You could say that the threat of higher taxes has caused people to not spend, but I never really believe make current spending decisions based on their belief of higher taxes.

My point is that it’s hard to put your fingers on the true cost. But even if you say Osama bin Laden cost us $1 trillion dollars in the past decade, it’s still a small portion of the $14 trillion we have build up in national debt. And perhaps a big of good news is that the professors find that most of the spending on security has either leveled off or is dropping in the past few years, though we still spend way more than we used to, and that probably will continue. Still, it’s hard to say that Osama’s economic war on America was anything more than a failure as well.


The Bin Laden Spending Spree (CNNMoney)