Was 9/11 the Most Expensive Act in History?

Osama bin Laden's death punctuates a ten-year war of recrimination after the attacks of 9/11. The economic legacy of this single act of terrorism is too vast to quantify precisely, but we can approximate its scope. The wars in Afghanistan and Iraq will cost nearly $5 trillion before the end of this decade, according to some economists. The homeland security measures to protect us from further attacks added another trillion. The loss of human life in the attacks and the wars that followed are immeasurable, but the final score reads something like: one terrorist attack, many trillions of dollars.

Osama Bin Laden Ezra Klein's accounting of the cost of 9/11 made me wonder about the most expensive acts in history. What cost more than the falling of the twin towers? Scanning the last 100 years, I kept coming back to Gavrilo Princip, whose assassination of Archduke Franz Ferdinand of Austria is considered the spark that lit the conflagration of World War I.

But estimating the total cost of World War I is utterly impossible, right? Wrong! Hugh Rockoff, a research associate from the National Bureau of Economic Research, published The Economics of World War I and found that the total cost of military operations was half of the gross domestic product of the United States. Still, that's not much different than, 9/11 if we calculate that total war and security costs have exceeded $6 trillion over ten years in a $14 trillion economy.

The final cost of Princip's bullet to the United States cannot be captured in wartime expenses, Rockoff wrote. Its legacy includes wartime regulatory agencies, veterans benefits, and a culture of spending that set the stage for the New Deal and the American safety net.

Rockoff estimates the total cost of World War I to the United States at approximately $32 billion, or 52 percent of gross national product at the time. He breaks down the financing of the U.S. war effort as follows: 22 percent in taxes, 58 percent through borrowings from the public, and 20 percent in money creation. The War Revenue Act of 1917 taxed "excess profits" -- profits exceeding an amount determined by the rate of return on capital in a base period -- by some 20 to 60 percent, and the tax rate on income starting at $50,000 rose from 1.5 percent in 1913-15 to more than 18 percent in 1918. Meanwhile, Treasury Secretary William Gibbs McAdoo crisscrossed the country peddling war bonds, even enlisting the help of Hollywood stars and Boy Scouts. The prevalence of patriotic themes created social pressure to purchase the "Liberty bonds" (and, after the armistice, the "Victory bonds"), but in practice the new bondholders did not make a tangible personal sacrifice in buying war bonds, since the yields on the se debt instruments were comparable to those on standard municipal bonds at the time. As Rockoff notes, "patriotic motives were not sufficient to alter market prices of assets during the war."
Subsequent increases in federal spending resulted mainly from war-related matters (such as veterans' benefits), and the most of the wartime regulatory agencies soon disappeared due to the efforts of conservative politicians. Nevertheless, the successful wartime experience "increased the confidence on the left that central planning was the best way to meet a national crisis, certainly in wartime, and possibly in peacetime as well." This view became increasingly important after the Democrats reached power during the Great Depression. "Almost every government program undertaken in the 1930s reflected a World War I precedent," explains Rockoff, "and...many of the people brought in to manage New Deal agencies had learned their craft in World War I."