Archive | April, 2013

About Boston

20 Apr

I have been debating whether or not to post a blog entry about the events in Boston this past week. I have no real connection to the city or people of Boston – having been born and raised in Montana – and yet the events were personal. I was in Boston the week prior to the deadly explosions at the marathon. I was there with an international group of individuals dedicated to helping small businesses start and grow. We were meeting in Back Bay and visiting business incubators around the Boston area. In the evenings, I was meeting and socializing with the people who live, work and play along Boylston Street.

This being a business and economics blog, I wanted to include some relevant information on the economic impact of acts of terrorism. This impact can be calculated from a variety of perspectives. There are the direct costs to property and the immediate impact on productivity, as well as longer term indirect costs of responding to terrorism. In the last several years, most analyses of terrorism’s economic impact begin with an interpretation of the costs of the September 11, 2001 attacks.

The direct cost of the September 11th attacks has been estimated at somewhat over $20 billion. Economist Paul Krugman cites a property loss estimate by the Comptroller of the City of New York of $21.8 billion – or about 0.2 % of the annual U.S. GDP (“The Costs of Terrorism: What Do We Know?” presented at Princeton University in December 2004).

Similarly, the OECD (Organization for Economic Cooperation and Development) estimated that the attack cost the private sector $14 billion and the federal government $0.7 billion, while clean-up was estimated at $11 billion. According to R. Barry Johnston and Oana M. Nedelscu in the IMF Working Paper, “The Impact of Terrorism on Financial Markets,” these numbers are equal to about 1/4 of 1 percent of the US annual GDP – approximately the same result cited by Krugman.

So, although the numbers by themselves are substantial, to say the least, they could be absorbed by the American economy as a whole. The human cost is immeasurable.

The response to the attacks has been equally costly indeed. Defense and homeland security spending are by far the largest cost. However, as Krugman has asked, should the all of expenditure on ventures such as the wars in Iraq and Afghanistan really be considered a response to terrorism, or a “political program” enabled by acts of terrorism? From 2001 to 2013, spending on the “War on Terror” has reached $1.487 trillion. This does not include the DOD base budget, the expenses incurred by other departments, such as the FBI or State Department, or the cost to run Homeland Security and the Veterans Administration costs to care for our returning service members. We may debate whether the expenditures on defense and security are (or are not) essential for any nation, but these expenditure come with an opportunity cost; those resources are not available for other purposes, from spending on health and education, to reductions in taxes or the national debt.

But as I stated previously, my motivation for this blog entry is more personal. Ironically, I had observed to friends and co-workers that there was a certain sense of security walking around Boston. There was a limited security presence when riding public transit, or visiting the Boston Public Library or the Museum of Fine Arts. A sense of security that I do not get in DC, with its endless security announcements, bag checks and security scans. I hope that the people of Boston are able find a balance between security and freedom.

And I believe they will. My feeling is the people of Boston embrace the ethos of entrepreneurs everywhere – an ethos that embraces tenacity and resiliency, competitiveness and social responsibility, street smarts and integrity, inspiration and perspiration, and a willingness to accept risks.

My thoughts and prayers are with you.