Bart Hobijn and Erick Sager take a look: What Has Homeland Security Cost? An Assessment: 2001-2005 (FRB New York, Current Issues in Economics and Finance, February 2007).
The question is important:
Not surprisingly, the costs of this effort raise hard questions about U.S. resource allocation. Specifically, there is concern that large-scale spending on security could hold back economic growth by diverting labor and capital from more productive uses...
Hobijn and Sager estimate public and private expenditures on homeland security (although state and local expenditures, other than expenditure of federal grants, are not estimated):
We estimate that homeland security spending climbed from $56.0 billion in 2001 to $99.5 billion in 2005. As a fraction of nominal GDP, these dollar amounts translate into a rise from 0.55 percent in 2001 to 0.80 percent in 2005. Increases in federal government spending account for $34.2 billion of the $43.5 billion rise in spending, while the remaining $9.4 billion is attributable to increases in private sector resources devoted to homeland security.
The economic impact of these expenditures appears to be small:
These numbers point to a relatively small increase in the share of resources targeted to homeland security in the post 9/11 period. Given this modest increase—as well as the robust economic performance of the U.S. economy since 2001—we conclude that the broader economic impact of higher security spending has been very limited....
We find little evidence to suggest that increases in homeland security spending have led to far larger costs for the overall U.S. economy. While the share of homeland security spending in GDP rose from 0.55 percent in 2001 to 0.80 percent in 2005—an increase stemming in large part from the $34.2 billion step-up in the federal government budget on homeland security—spending on security-related inputs in the private sector does not seem to have increased as a fraction of private sector GDP. Instead, it has remained constant at about 0.46 percent. Moreover, forecasts by the Congressional Budget Office and the Bureau of Labor Statistics indicate that we should not expect a major shift in resources toward homeland security activities in the next decade. Finally, our look at output and inventory levels in the 2001-05 period suggests that homeland security outlays have not significantly constrained U.S. economic activity.
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