The 10th anniversary of 9/11 has been somber. The so-called “war on terrorism” has not ended in US victory. True, the US has not suffered any repeat attacks since 9/11: its homeland security has been very effective. Osama bin Laden and many of his lieutenants have been killed. Al-Qaida has been defanged and is disliked even across the Muslim world.
Yet the US has failed in Afghanistan and suffered huge losses of men and money in Iraq. Terrorism is more widespread globally than 10 years ago. India is a major victim, as exemplified last week by the bomb explosion at the Delhi High Court.
US analysts of 9/11 have tended to focus on military and nation-building failures in Iraq and Afghanistan. Yet, arguably the biggest impact of 9/11 has been economic. It has been a major, though neglected, contributor to current US woes, adding greatly to other causes of the Great Recession of 2007-09–- a housing bubble, financial boondoggles and monetary bungling.
In 2008, Joseph Stiglitz and Linda Bilmes produced a book, “The Three Trillion Dollar War: The True Cost of the Iraq Conflict”. Their estimates included indirect costs like higher oil prices and long-term medical costs for injured soldiers. At the time, critics flayed the $3 trillion estimate as grossly inflated. But Stiglitz claimed recently that the cost might approach $6 trillion, given that US troops remain in Iraq and Afghanistan with no end in sight. In hard cash, the US still spends $12 billion per day.
The end of the Cold War had fed US delusions of being the sole superpower. But its economic fragility had already been exposed by record trade deficits (which it blamed on China’s currency manipulation). Never in history has a superpower run huge trade deficits. Never in history has a superpower had a household savings rate of zero.
Wars are expensive and usually financed by high taxes. But George Bush actually cut taxes. Meanwhile, the housing bubble induced an unprecedented borrowing spree—household savings fell from 8% of GDP to almost zero. Bush created additional Medicare benefits, and Obama recently added to these in his healthcare reforms.
The Great Recession showed, dramatically, that the US could no longer afford the combination of low taxes, low savings, high welfare benefits and foreign wars. Absent the trillions spent in foreign wars, the US economy may have recovered quickly. But the war on terror doomed it financially. US government debt to outsiders has soared from 40% of GDP to 67 %, and further to 98%, including gilts held by US agencies like the social security system.
Economist Michael Boskin says in a Wall Street Journal op-ed that federal spending (25% of GDP), the budget deficit (10 % of GDP) and federal debt (67% of GDP) are all at their highest levels since World War II. The proportion of employed citizens (58.1%) is the lowest since 1983. The proportion of long-term unemployed (59%) is the highest since the 1930s. The proportion paying income tax (49%) is the lowest in modern times. The proportion getting government handouts (47%) is the highest in history.
This chilling portrait illustrates the length and depth of the Great Recession. Yet its travails could have been avoided, or greatly diminished, without the huge costs of war after 9/11. Left-wing critics of US imperialism have been as blind as instinctive imperialists like Dick Cheney in seeing the US as a superpower that can flatten all opponents. Both the left and right have ignored the financial mess behind the superpower façade.
Osama bin Laden was stupid indeed in thinking that by attacking the World Trade Center he would hit US trade, and that by hitting the Pentagon building he would hit US military capacity. He thought the US had proved in Somalia and Lebanon that it had no stomach for military casualties, and so could be attacked with impunity. He never foresaw that the US would react so strongly to 9/11.
More important, neither he nor others foresaw that the US reaction to his attack would gradually sink the US into financial quicksand. True, Osama required immense help in this endeavour from George Bush– his war on Iraq was inane. Yet, remember that the US politicians across the spectrum supported the Iraq war, and did not call for higher taxes to finance the war. Myopia and hubris were not Bush monopolies.
So, on the 10th anniversary of 9/11, Osama’s ghost can smile even as his body sleeps with the fishes. Through unseen financial consequences, he has hurt and humiliated the infidel superpower more than 9/11 did.