The most visible face of terrorism was killed yesterday. If you’re wondering what difference this is going to make for global markets in oil and other assets, the answer is “not much.”
Oil ticked down slightly after the news broke, but it started to creep back up again toward its original price from the market opening. CNNMoney.com’s headlines were “Oil erases knee-jerk optimism” and “Gas could top $4 this week” at about noon Central time. There was an initial burst of optimism as the stock market rallied slightly, but then it settled back down.
According to folk Keynesianism, we might observe waxing animal spirits that tell investors that they can begin to invest again. Monday morning’s movements in asset prices suggest that such waxing animal spirits were at best a temporary phenomenon.
The macroeconomic effects of bin Laden’s death are likely to be minor. They might provide a slight distraction and a temporary boost to spending, consumer confidence, investor confidence, and the like, but that is about it. The most important questions facing policymakers concern the prospect of retaliatory terrorist attackswhich, I think, are very unlikely to succeed on the scale of the 9/11 attacksand the possibility that bin Laden’s death will change the way people view the government.
In an interview with Yahoo! Finance, Aaron Task said that “(e)conomically speaking, bin Laden’s death will be significant if it revives confidence in the government’s ability to do something right.” This isn’t necessarily a good thing because people tend toward what economist Bryan Caplan called “unreasoning deference” to the government. In his book The Myth of the Rational Voter, Caplan points out that the percentage of people who answered “just about always” or “most of the time” to a question asking how often they could “trust the government in Washington to do what is right” increased to 64% after the 9/11 attacks from 30% in 2000.
This makes me less than optimistic about whether bin Laden’s death will yield better policies. The fact that the Department of Homeland Security (and its arguably most visible arm, the Transportation Security Administration) represents an expenditure of resources that create massive inconveniences rather than additional security has not changed. The political climate has, however, and I would expect to see more pushback against those of us who would be so gauche as to criticize the DHS and the TSA. After one of my articles questioning the need for the TSA, a commenter expressed the wish that I, my friends, and my family would die in a terrorist attack. I expect bin Laden’s death to embolden enthusiasts for war and defenders of the TSA.
The specific mission in which he was taken out was a success, but in light of ten years and two wars, killing bin Laden was not “doing something right.” We cut an immense swath of destruction over the course of ten years to find, in Matt Nesto’s words in another interview for Yahoo! Finance, “a big spending hi-profile outspoken terrorist with an entourage and dialysis machine.” We shouldn’t be congratulating ourselves for a job well done. We should be wondering how, exactly, it took so long to bring this to a resolution. It probably isn’t too much of a stretch to think that we might have been able to accomplish the same task for tiny fraction of the cost and in about a tenth of the time by offering a billion dollars to Dog the Bounty Hunter in exchange for bin Laden.
Bin Laden’s death matters politically, but his death’s economic importance is only indirect. We should take no pleasure in the death of the wicked, nor should we expect it to change much with respect to American foreign policy. There is still no clear end in sight for the wars in Iraq and Afghanistan, for example, and I would not be surprised if bin Laden’s death catalyzes enthusiasm for wars in countries like Syria and Pakistan. After it has been filtered through the political process, what we have won with bin Laden’s death might actually be a pyrrhic victory.
|Art Carden is a Research Fellow at the Independent Institute in Oakland, California, and Assistant Professor of Economics at Samford University.|