MAKING SURE OUR SECURITY DOESN'T BANKRUPT AMERICA

Saturday, September 11, 2004

Last week the Heritage Foundation, in cooperation with the El Pomar Foundation, held a conference on homeland security at El Pomar's conference center in Colorado Springs. I'd like to tell you about one panel discussion, formally titled "What Price Security: Can Protective Measures Wreak More Economic Damage than Terrorists?"

Or, as panelist Daniel Goure of the Lexington Institute put it more colloquially, "Can we fight the war on terrorism without spending ourselves into oblivion?"

Baker Spring of Heritage started things off with an overview of federal spending over the last several decades. He listed four components of the federal budget: major entitlements (Social Security, Medicare and Medicaid); defense; interest on the national debt; and other discretionary spending including some smaller entitlements.

The major entitlements were the only component that consistently grew faster than the economy as a whole.

Defense went from $52 billion in 1962 to $405 billion in 2003. Those are current dollars, not adjusted for inflation, but in percentage terms defense dropped steeply, from 46 percent of the federal budget to 18 percent.

The major entitlements, on the other hand, rose from $14 billion to $905.5 billion, which is from 12.9 percent of the budget to 40 percent.

The other two categories more or less canceled each other out, with total federal spending as a portion of the gross domestic product varying within a fairly narrow range of 16 percent to 23 percent.

Net spending on homeland security for 2003 was approximately $30 billion, but there's no real consensus yet on what should be included in that category, and obviously no historical record for comparison. But a harder question, Spring said, was figuring out the burden imposed on the economy by regulation.

The Office of Management and Budget does such assessments, but only for major regulations, and only over a 10-year period. It estimates the annual cost for some 37 regulations at from $34 billion to $39 billion. Only three of the 37 are clearly related to homeland security, he said, yet those three account for more than a third of the regulatory burden.

Potentially this is a very serious problem for the economy, but as Spring said later in answer to a question, even so the cost of everything related to homeland security might look like "pocket change" in 20 or 30 years when the entitlement bills come due.

Goure spoke next, and I think I should tell you that he is tough-minded, blunt and sardonic -- and I intend that as a compliment. If you read his words unadorned on the page, without knowing him, you might conclude that his remarks are either flippant or callous, and they are not.

Terrorism, Goure said, "is the gift that keeps on giving," because after the direct costs in lives, and in property, there are indirect consequences on trade, on business, on insurance and throughout the economy.

The costs of 9/11 included $4.5 billion in lives, $16 billion in property, $10 billion in cleanup, primarily in New York City alone. But in addition it may have knocked five points off GDP, which amounts to half a trillion dollars.

The effects could be vastly larger if, for instance, we had to write off Manhattan after a nuclear attack.

So, he asks, does that mean that any price is worth paying to prevent such a thing? No, he answers. We might end up spending enormous amounts of money on homeland security, to little effect, or with little ability to demonstrate any effect.

Homeland security, he says, is "the biggest blank check ever" and he observes that creating a department dedicated to it didn't help, any more than the Department of Education improved education. "We can't prioritize, we have no strategy and we don't even agree on what the problem is." Are we fighting a group, or an ideology or something more like a force of nature?

He believes we should adopt principles of "cost containment" to avoid "spending ourselves into oblivion" without ever knowing whether we're doing any good.

Briefly, here are six likely to yield the most benefit for their cost (and be assured, some are controversial).

* Put more resources into intelligence, including techniques for "data mining," putting together information from multiple sources searching for patterns indicating suspicious activity.

* Focus on transportation management so people posing no threat can get where they need to go and cargo can get where it's needed.

* Concentrate on catastrophic events. We can't protect everything, and we should accept that some attacks might get through. We'd have some bad days, but we'd survive.

* Plan to mitigate the worst effects of terrorism.

* Undertake offensive operations to delegitimize terrorism as a tactic. He cited piracy and slavery as examples. We didn't study pirates to find out what their motives were or why they hated us, we just wiped them out.

* Minimize other expenditure, so homeland security doesn't become a means of getting funds for what are really lower-priority goals.

I wish I could give you more than just a small taste of this very provocative session.