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The high cost of terrorism

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Around for centuries, terrorism usually has been relatively cost-efficient. However, increased levels of lethality, miniaturization and remote control of modern explosives have rendered today's terrorism vastly more cost-effective.

Two relatively simple bombs placed at the finish line of the Boston Marathon killed three, injured about 280 and caused extensive property damage and economic loss. The future cost from the fallout is almost impossible to estimate.

Broadly speaking, terror can be divided into disruptive, sabotage, and demonstrative. Even demonstrative terrorism is divided between individual suffering, as in the case of Buddhist monks, and mass damage, like 9/11. Physical acts of mass-damage demonstrative terrorism, even when they fail as in the case of the “underwear bomber” aboard the Detroit-bound flight on Christmas Day 2009, are designed to create a feeling of fear or terror. The result of both the terrorist act and the resulting fear is economic loss. But they are distinctly different in their economic effect.

Normally, physical acts of terrorism result in grievous human and severe property damage. The resulting atmosphere of terror is subtler in its effect. The creation of fear can prevent or even hinder people in the conduct of their normal lives.

For example, football fans may avoid attending live games at large, crowded stadiums, opting to stay away from a potential terror target and watch the game on television in the security of their own homes. This causes economic loss to many job-creating businesses including football clubs, transport companies, hotels, and small vendors. If the fear of associating with large crowds is extended to shopping centers, theaters and similar public locations, the economic damage can become serious.

On Sept. 8, 2011, The New York Times published an estimate that the 9/11 terrorists spent some $500,000 for training, planning, infiltration, tickets, etc. to cause $3.283 trillion in costs to the United States on 9/11. The breakdown was $55 billion in human and physical losses, but that was overshadowed by an estimated $123 billion in economic loss.

The net impact of the Boston bombing by two supposed “lone wolf” terrorists likely will be infinitely less than the damage done by “core terrorists” at the World Trade Center in 2001. Nevertheless, the cost to Boston will be real.

Beyond the human tragedy of the deaths of an 8-year-old boy and two young women, and beyond the more than a dozen people who have lost limbs, there is a heavy economic impact from closing down Boylston Street, a third of the city for a day, and telling an entire metro area to stay shut indoors for a day.

Jim Diffley, vice president and chief economist for IHS Global Insight US Regional Services Group, has supervised quarterly economic forecasts of 50 states and more than 300 U.S. metropolitan areas since 1998. He estimates that Boston's normal economic production is about $1 billion a day. He estimates that shutting down Boylston Street and a third of the city for a day cost some $333 million.

The cost to terrorists to imbed fear into adults — especially for their children's safety — about going out into crowds at public events? Priceless.

John Browne, a former member of Britain's Parliament, is a financial and economics columnist for Trib Total Media. Email him at johnbrowne70@yahoo.com.

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