This column is to appear in the Augusta Business Chronicle (November 2001). The Economics of Terrorism The terror attack in the United States on 11 September 2001 has given rise to a vast amount of commentary. But one group of experts has not been asked its views: economists. Economists? What could economists possibly have to say about terrorism, other than that the attack in the US might have caused a recession, something that is taken to be "common knowledge" anyway. The answer is that there is a field within economics – the economics of terrorism – that raises important issues and has made important discoveries that people and politicians should be aware of. Let me make three points. First, economists see terrorists as rational actors – of a shabby sort, to be sure, but rational nonetheless. Given existing constraints on their activities, even terrorists need to decide how to apply limited resources to maximize their impact. It follows that one empirically testable hypothesis is that when governments increase the constraints on pursuing one avenue of terror, terrorists will substitute and pursue other avenues of terror. Economists have carried out such hypothesis testing and found that the installation of airport metal detectors as from 1973 onward induced terrorists to increase attacks on other targets, such as embassies. And as embassies were secured as from 1976 onward, terrorists shifted to attacking diplomatic personnel away from secured embassy grounds. The attack in the US in September confirms this hypothesis of substitution. Airport security in the US was widely known to be lax: relative to other targets, the cost of targeting US airliners on US soil had fallen and would attract just this sort of action. Second, another testable hypothesis is that there will be cycles of terrorism. A terrorist attack, or series of attacks, induces a government reaction during which opportunities for terrorism decline. During the phase of decline terrorists search for substitute targets. Meanwhile, government declares victory and attention falls, eventually permitting the renewal of the cycle. The existence of such a cycle since the 1970s is exactly what economists have empirically confirmed. In the wake of the attack on the US in September, we can therefore predict a decline in the number of transnational terror attacks for the next few years. But eventually the number of terror attacks will increase again – unless attention, this time, does not fail again. Third, economists argue that countries can protect themselves from terrorism by offering terrorists safe-haven in exchange for not themselves being attacked. For example, so long as transnational terrorism is directed against the US, other nations have little interest to help bear the cost of anti-terrorist cooperation. Even if terrorism is directed against US interests in Europe, so long as collateral damage to the European host nations is limited, the Europeans would have little interest to share in the cost of anti-terrorism efforts. This helps to explain why such cooperation has been so difficult to establish in the past. In the end, the Europeans – Germany and the UK in particular – may have as much to answer for as the terrorists themselves. What to do? First, the Federal Air Marshal program is an expensive hoax. Putting armed agents on a random selection of flights will still leave many flights unprotected. While security is reassuring, reassurance is not security. Much better to install in all aircraft a "cockpit panic button" that irreversibly disables in-plane controls and switches command of the aircraft to remote controllers. Second, government must beware of terrorist substitution and fortify or protect likely substitute targets and direct future terrorist attacks toward targets that are increasingly less costly to society. Hence, the current extensive effort to check the nation's vulnerability to biological and chemical terror attacks. Third, government must minimize terrorist resources, both directly in terms of their finances, personnel, and bases of operation and indirectly by starving them of their recruitment base of young, impressable minds.  Fourth, the United States must make clear to its old and new allies that the consequences of future non-cooperation would be severe. It is only because the United States can – and probably does – credibly threaten to cause major inconveniences for other nations that they suddenly cooperate so willingly and, within days of the September 11 attack, "discovered" so very many terrorist cells directed against the United States. I do not, at any rate, have any other good explanation of why so much "cooperation" is suddenly forthcoming, even from the most unlikely of states, such as Russia, Indonesia, Saudi Arabia, and Pakistan. Dr. J. Brauer is Professor of Economics at Augusta State University's College of Business Administration. He can best be reached via his web site (http://www.aug.edu/~sbajmb).