GDP and Terrorism

In the past few articles, we have spoken about the absurdity of the GDP system. This absurdity has been brought to light with the use of examples, examples which include common sense events like war, sickness and natural disasters. Common sense dictates that all these events are bad for the people and therefore for the economy. GDP sense, however dictates otherwise.

To bring to the fore the absurdity of the GDP system even more we will discuss the relationship between GDP and terrorism in this article. Terrorism, as we all know from common sense is an extreme social evil that needs to be eradicated. However, strangely GDP views terrorism in a positive light. It wants us to believe that there is a economic silver lining to this terrorism dark cloud. This obviously is not the case. In this article we will look at the GDP system’s argument in the favor of terrorism and then debunk the myths and fallacies that arise as a result.

Terrorism Increases Surveillance Costs

The first point that some economists mention is that terrorism leads to increased expenditure and since GDP is a system which is counting expenditure (regardless of good or bad), terrorism ends up being favorable to the economy. Consider the case of the United States for example. United States had pretty strong safety measures already in place at all their airports. However, post the 9/11 attacks the security has been beefed up much more. This has created the need for top notch surveillance by the United States. They now need to have more spies and better intelligence network. All this causes expenditure and therefore results in a higher GDP

Terrorism Leads To Increased Spending On Safety Equipment

The argument is then extended to state that certain industries have sprung up solely as a result of terrorism. Consider the fact that all airports across the world now employ equipment which did not exist a few years back. Safety equipments have been created to detect bombs and explosives in almost any form to counter the onslaught of the terrorists. These equipments are sold at very expensive prices and have to be purchased by airports to stay in business. Hence terrorism has somehow lead to creation of more and better equipment and therefore ironically is an economic boon!

Terrorism Creates Employment For Safety Personnel

Going forward on similar lines, some of these economists also state that terrorism has created the need for more safety personnel. The top leaders in the world now need more security and so does the average person. The federal agencies need more manpower and so does the local police station. Therefore, by blowing up planes, buildings and killing thousands of innocent people, the terrorists seem to have achieved the noble task of creating jobs for hundreds of thousands! The GDP system therefore states that terrorism is not only increasing expenditure but also has a silver lining when other economic metrics like employment are considered.

Adam Smith Revisited

Some of these fallacies are strongly worded and to the na´ve student may appear like the truth. To expose these fallacies we have to go right back to Adam Smith and his seminal work, “The Wealth of Nations”. In that book Adam Smith states that labor is the only productive force that an economy has and how that labor is deployed decides the fate of that economy.

He further went on to bifurcate about productive laborers who are engaged in industry and unproductive laborers such as judges, police, armed forces etc. He then states that unproductive laborers have to be maintained to ensure that the economy functions. However, their number must be kept at a minimum since they basically feed off the work of the productive laborers.

Terrorism Increases Bad Labor

Now, with this understanding in sight, let’s once again look at the above mentioned points. Now, it is true that terrorism does create employment for security personnel. However, since the resources are limited, every job created in security is a job not created in some other productive industry. Wouldn’t the world be a better place, if people required less security? Couldn’t the labor of these able bodied men and women be put to better use in some other industrial or commercial pursuit? Also, couldn’t the metal, technology and software being created to track down the terrorists be put to better use if we required less safety systems?

Terrorism therefore may increase the overall GDP. However, it causes an imbalance. It creates more jobs that have to be paid for by taxpayer’s money. This means that taxes will rise and spending will be cut creating job losses in other sectors.

Terrorism Causes Public Loss

To conclude, terrorism is simply a disease. It is a social disease and also an economic disease. It causes wasteful expenditure and imbalance within the economy. To even consider that such heinous and dastardly acts can be good for the economy is insulting the discipline of economics. Terrorism, like the disasters mentioned earlier causes loss and impedes the functioning of land, labor, capital and enterprise viz. the factors of production which are also the pillars of the economy.


❮   Previous  Article Next  Article   ❯

Authorship/Referencing - About the Author(s)

MSG team comprises experienced faculty and professionals who develop the content for the portal. We collectively refer to our team as - “MSG Experts”. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.