The Economic Costs of Terrorism Hit an All-Time Peak

By: John_Mauldin

The world can change quickly, and last week it did. The most immediate and heartbreaking impacts of the Paris attacks were suffered by the victims themselves and their families, but from there the ripples of terror spread outward around the world.

The Paris events didn’t happen in isolation. Recent bombings in Lebanon, Iraq, Mali, and Nigeria, plus the Russian airline disaster, showed us how far evil can reach.

It isn’t just ISIS: al-Qaeda is getting stronger in some places; Boko Haram continues to strengthen in West Africa; the Taliban is resurgent in Afghanistan; and the list goes on…

In addition to the catastrophic human cost, terrorism has economic impacts. It misallocates resources, distorts prices, and prompts adverse government policies. We all feel these effects, even if we live far from the terror zones.

Terrorism is global. So is the economy. We can’t separate them.

The Direct Cost of Terrorism Reached $52.9 billion in 2014

I saw a report referenced on Bloomberg last week that said 2014 was the costliest year for terrorism since 2001, in both financial terms and human lives lost. That assertion seemed remarkable, so I went to the source.

The Institute for Economics and Peace is an Australian nonprofit think tank. I can’t vouch for their expertise, but their “Global Terrorism Index” is still interesting.

They calculate that the worldwide economic cost of terrorism was $52.9 billion in 2014, an all-time peak. That’s the GDP of a small country gone up in smoke (literally).

IEP arrives at that number by adding up property damage along with medical costs and lost income for victims. But they do not include the indirect costs of preventing or responding to terrorist acts.

What About Terrorism Prevention?

How much money does the world spend to cope with the mere possibility of terror attacks? The US Transportation Security Administration’s 2014 budget was $7.4 billion. TSA is only one of several agencies focused on terrorism and the US is only one country.

Think about all the private security guards, construction costs of hardening office buildings, executive and staff time spent dealing with the inevitable headaches and delays, and much more.

Pick a very large number. Whatever that number is, you can bet the cost will go much higher after what happened last week. For instance, how much did it cost to shut down Paris for a weekend?

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