The latest edition of the Federal Reserve Bank of New York’s Current Issues in Economics and Finance, What Has Homeland Security Cost? An Assessment: 2001-2005, is available.
Authors Bart Hobijn and Erick Sager estimate that homeland security spending climbed from $56 billion in 2001 to $99.5 billion in 2005. Federal spending accounts for $34.2 billion of the roughly $43.6 billion increase, while private sector spending accounts for the remaining $9.4 billion.
The authors indicate that while both the public sector and the private sector have boosted their security expenditures, the increase has been very modest as a share of the nation’s overall resources: Total spending on homeland security rose from 0.55 percent of GDP in 2001 to 0.80 percent of GDP in 2005—a gain of only ¼ of 1 percent.
The authors undertook their analysis in response to concerns that large-scale spending on security could hold back economic growth by diverting labor and capital from more productive uses. Given the modest increase of resources targeted to homeland security in the post-9/11 period, Hobijn and Sager conclude that the broader economic impact of higher security spending has been very limited. The authors point out that their analysis deals solely with costs and does not address the effectiveness of the increased expenditures in achieving the goals of the homeland security program.
Bart Hobijn is a research officer and Erick Sager an assistant economist in the Microeconomic and Regional Studies Function of the Research and Statistics Group.