As we entered this year, a Gallup poll indicated that the most important issue on Americans’ minds was terrorism. The events of this past week are not likely to change that.
A healthy free market economy is in the best position to fight terrorism. Its efficiencies in resource allocation provide the economic strength to combat any enemy. The economic structure of a market economy, though, is by its nature open, and this makes it vulnerable to attacks.
Our economy, for example, makes extensive use of the Internet for communications and information sharing. It is the source of a great deal of efficiency and productivity in markets, firms and individuals. At this point it is difficult to imagine most companies functioning without it.
This remains true despite the diversion of much of the Internet’s labor productivity into leisure and semi-leisure activities — so much so that entire industries have sprung up to satisfy the increased demand for time-absorbing web sites, social media, games, and entertaining apps which find places for themselves in the workplace.
Fortunately, the basic design of the Internet makes it difficult for attackers to disable the network completely, either through physical damage or cyber-attack. Through its system of load-sensitive nodes, communications traffic packets are routinely routed and rerouted on their journeys from sender to receiver. Anyone who has ever waited for an Internet Protocol (IP) address change to be recognized by each and every network node can attest to the size and complexity of the network — and it presents the same easy-to-hit but hard —to- knock-out target profile to any attacker, certainly to the average bomb-thrower.
The U.S. economy depends greatly on electrical energy and the transmission and generation facilities do present targets for terrorists. The “grid,” which allows the inter-regional flow of electric power to match the daily sunrise-to-sunset, light to darkness, cycle as it progresses across our continent. This grid still has some limitations that increase our vulnerability and while these are being addressed we’ve still got miles to go before we sleep soundly.
Our economy is also highly energy-dependent on oil for its transportation systems, and at times our country has found itself uncomfortably reliant on foreign oil supplies and perilously long logistics lines. That is not the current situation, though, as our economy is now far less dependent on foreign oil. And of the oil still imported our largest supplier by far is Canada, and its proximity, democratic traditions, and economic structure give it a natural alignment with our own interests in suppressing terrorism. In reality, the vulnerability of ISIS to disruption of its income from outbound oil flow is a greater risk area for them than our oil import needs are for the United States.
Our economy still has vulnerability in its dependence on some raw materials that are in limited global supply, but the existing inventories of critical resources make these generally low-payoff targets for terrorist organizations.
By far the largest vulnerability of our economy is not physical. The goal of terrorism is to inflict psychological damage. ISIS knows that in a matter of days the Brussels airport will reopen and the Metro will be running again. The psychological effects however are more lasting.
The purpose of a terrorist act is for the terrorist organization to appear more powerful than it actually is. It wants the target population to believe that it can strike anywhere, anytime, and that their government is powerless to protect them from these attacks. In that sense, nothing could have been more pleasing to the terrorist leaders than to hear in the European or U.S. news media that “ISIS is winning.”
The move into real estate by ISIS in establishing its caliphate represents a departure from the stateless terrorism organizational model presented by Al Qaida and so many of its predecessors. We certainly do not know how this strategy will play out, but suspect that it relates to creating a form of legitimacy to avoid being left out in the event of an internationally negotiated settlement of some sort in the region.
Overall, while there are undoubtedly ways that our economic systems could be sabotaged and disrupted, a free market economy can be pretty resourceful, too, and its resiliency should not be underestimated…if we don’t lose heart.
Our fear of ISIS’ terrorism is the primary vulnerability of our economy. Each time there is a major terrorist attack in the U.S. or Europe it affects the decisions of consumers, investors, and businesses alike. Franklin Delano Roosevelt recognized the destructive power of fear in a democracy and its economic system when he said, at the outset of the Great Depression, that “The only thing we have to fear is fear itself.” He’s still right about that.
James McCusker is a Bothell economist, educator and consultant. He also writes a column for the monthly Herald Business Journal.
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