Post-9/11, US economy pays steep price

Agence France-Presse

Posted at Aug 17 2011 11:43 AM | Updated as of Aug 18 2011 01:15 AM

WASHINGTON  - Osama bin Laden failed in his lifetime to achieve his goal of "bleeding America to bankruptcy," but 10 years after 9/11 the United States is still paying a steep economic price.

The avalanche of spending on military and counter-terrorism operations that followed the September 11 assault -- estimated at up to $4 trillion in foreign wars -- combined with sweeping tax cuts under president George W. Bush, helped spawn the deficit crisis now roiling the country.

In the name of the "war on terror," Bush launched the US military into Afghanistan in October 2001 and then into Iraq in March 2003, swelling the Pentagon's already significant budget.

Fueled by war expenses and its response to the financial crisis, Washington's spending has more than doubled over the past decade, while revenues to pay the bills only grew 10 percent, leading the government to borrow to finance its war on terror.

'Bleeding America to bankruptcy'

Fast-forward to 2011 and Washington politics has deadlocked over how to deal with the soaring debt, bringing the country to the brink of default and costing its triple-A credit rating from Standard & Poor's.

The US debt has soared from $6.4 trillion in March 2003 to more than $14 trillion today.

In comparison, the Al-Qaeda attacks on Washington and New York cost between $400,000 and $500,000 to execute, according to the US government's 9/11 Commission Report.

Bin Laden boasted in an October 2004 video that Arab and Afghan mujahedeen fighters "bled Russia for 10 years until it went bankrupt and was forced to withdraw in defeat" from Afghanistan in the 1980s.

"We are continuing this policy in bleeding America to bankruptcy," he said.

The short-term economic costs of bin Laden's attacks in New York alone were around $100 billion in lost jobs, lost taxes, destroyed infrastructure and cleanup, according to figures compiled by the the Washington-based Institute for the Analysis of Global Security.

Replacing the destroyed World Trade Center has a $3 billion - $4.5 billion price tag, while it cost $1 billion to fix damage caused to the Pentagon building, the institute estimates.

The greatest expense, however, came not from the destruction wrought on 9/11, but from the policy decisions made in response to the attacks.

The Pentagon's budget grew from 16 percent of federal spending to 20 percent as Congress financed the costly foreign missions begun by Bush and continued by President Barack Obama.

At the same time, the US national security and apparatus ballooned at significant cost to include some 1,271 state agencies and 1,931 private companies working on counterterrorism programs, according to a Washington Post investigation.

Researchers at Brown University's Watson Institute for International Studies estimate in that the wars in Iraq, Afghanistan and including Pakistan have already cost between $3.2 trillion and $4.0 trillion.

The figure includes commitments to future medical care and disability for war veterans, but does not include interest on war-related debt.

Economists Linda Bilmes and Joseph Stiglitz go further to argue that the 2008 financial meltdown linked to the US mortgage crisis was also "due, at least in part, to the war."

The pair wrote last year that consequences of the wars, and notably higher oil prices linked to the Iraq conflict, drained away money that would have sustained growth and either eased the crisis when the US housing bubble burst, or strengthened the nations ability to respond to it.

A pre-war US budget surplus

The US government budget was in near-balance at the time of Al-Qaeda's 9/11 attacks. Democrat Bill Clinton even left an $86 billion budget surplus when Bush succeeded him in the White House in January 2001.

Tax cuts and wars in Afghanistan and Iraq followed.

"The war in Iraq, which had nothing to do with terrorism, was a huge price to pay to get rid of one dictator," William Hartung, a defense expert at the New America Foundation, told AFP.

"And whereas in the past the US has financed wars in part with tax increases, that war was launched at the same time as tax cuts," Hartung said.

Economist Ryan Edwards estimated that without the wars, the ratio of civilian to military spending would be nine to 10 percentage points lower than it is today.

"War spending is stimulative to an extent, but when financed by deficits and borrowing, the benefits do not seem to be worth the costs," he said in a study, "Post-9/11 War Spending, Debt, and the Macroeconomy," published in June.

The paradox is not lost on Admiral Michael Mullen, the outgoing chairman of the Joint Chiefs of Staff, who, after a decade of waging the "war on terror", called the US public debt "the most significant threat to our national security."