Edited by Harry W. Richardson, Peter Gordon and James E. Moore II
Chapter 11: Analyzing Terrorist Threats to the Economy: A Computable General Equilibrium Approach
* Adam Rose INTRODUCTION Recent Osama bin Laden videotapes clearly suggest that the major objective of the al-Qaida terrorist network is to ‘bankrupt the United States’. Although popular attention to conventional military and terrorist activity usually focuses on human lives, strategic assets, and troop and public morale, expert strategists have long appreciated the importance of the economy as a symbolic target or as the key support base of military action. Examples include Nikita Khrushchev’s warning that the Soviet Union would ‘bury’ us with the production of goods and services, and the Second World War strategic bombing study to identify key economic sectors supplying the German war machine (US Strategic Bombing Survey, 1945; Baran and Galbraith, 1947). The economic impact of terrorist attacks is not limited to the obvious physical destruction of property at the moment of maximum news exposure. It includes the lost production in gross terms (sales revenue) or net terms (income from wages/salaries, proﬁts, rents and royalties) from these assets. It also includes potential turmoil in national markets, costs of increased risk, dampening of consumer and investor conﬁdence, and social impacts (many of which translate into economic losses as well). The challenge to estimate the economic threats of terrorism increases exponentially with the temporal and spatial distance from the point of attack. Property damage can readily be assessed in terms of simple accounting or cost-engineering considerations relating to purchase costs, or can be addressed by more sophisticated accounting stances of replacement cost, all at a given point...
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