In reaction to terrorist activities, governments often call for increases in defense spending. This often translates into tax hikes for the average citizen as governmental spending increases. While this may ease the minds of citizens and actually provide a higher level of security for a nation, the fact remains that every dollar that is given to the government is taken out of the cash flow of a nation’s natural market economy. The following highlights some of the effects of this trend and relates only to countries such as the United States that have at least somewhat of a market economy. Economies such as those of Communist regimes are exempt from the effects of the following because of the absence of market influence in the economy.

Jobs

It can be argued that a war can be good for an economy since a war creates a new demand for supplies such as ammunition, planes, and other military supplies. This can create new jobs as the market responds to increased demands. Thus, terrorist activities that trigger an increase in defense spending can actually serve to stimulate the economy within certain sectors, especially those related to producing military supplies and weapons. Often, terrorism causes governments to increase regulation on imports and exports as well as beef up security on public transportation. The result is an increased demand for security personnel and regulatory agents which in turn creates more jobs.

New Offices

Another response to terrorism is the creation of new branches of government in order to keep a closer eye on terrorist activities and secure the individual country from attack. An example of such a creation is the Department of Homeland Security which was created in response to the 9/11 attacks on America and has served the dual purpose of creating more government jobs while at the same time working to protect the United States from future terrorist attacks.

Disadvantages

As defense spending increases in response to terrorism, governments, both Federal and local, typically move other issues to the back burner. Healthcare, foreign aid, and education take a back seat to National Security at the expense of many. The United States increased its defense spending by nearly $100 billion between 2001 and 2003 in response to terrorism around the world. These budget increases made up for an estimated 45 percent of the total budget increases in the United States during that span. It is clear that when terrorism becomes the main priority of a nation, other government programs lose funding and are sometimes eliminated entirely.