The Cost of Antiterrorist Rhetoric

The Cost of Antiterrorist Rhetoric
Robert W. Hahn

Robert W. Hahn is a resident scholar at the American Enterprise Institute and an adjunct professor of economics at Carnegie Mellon University.

Nearly five months after the tragic TWA flight 800 crash, we still do not know whether the 230 people on board were killed by a terrorist act. With 95 percent of the wreckage recovered, there is little support for the theory that a bomb or missile caused the crash. Nonetheless, the White House quickly reacted to the incident by immediately implementing several heightened security measures and creating a White House Commission on Aviation, Safety, and Security (the Gore Commission). Forty-five days after its creation, the group had already proposed ambitious changes to airport security. Just thirty days after the commission's initial report, President Clinton signed into law most of these recommendations.

These changes will cost billions of dollars to implement and could cause extensive delays at airports. President Clinton assures us that "as a result of these steps, not only will the American people feel safer, they will be safer." But is this really true? The White House has neither given a clear indication of the effectiveness of these measures in preventing terrorist acts, nor acknowledged the true cost of implementation.

As Vice President Gore himself stated, there is no "silver bullet" for improving aviation security. There are difficult tradeoffs that will need to be made in terms of security, direct costs, delay, inconvenience, and civil liberties. For example, using computer background checks to identify suspected terrorists could enhance security at a reasonable cost, but would also curtail individual freedoms.

Improving security is important, but we need to assess the cost and effectiveness of each measure before spending billions of taxpayers and travelers dollars on security-enhancing measures. Moreover, we need to confront the question of how safe is safe enough. The sad truth is that the threat of airline terrorism cannot be eliminated unless air travel is banned, and that is simply too high a price to pay. So some level of risk must be deemed acceptable. This article provides a framework for thinking about these risk tradeoffs by examining the costs and benefits of policies selected for reducing terrorism.

Costs

In the post-TWA crash world, airline travelers can easily tell you about the costs they have incurred. Passengers must arrive at airports earlier, stand in longer lines, answer more questions about the contents of their carryon bags, and show photo identifications before boarding.

Implementing the commission's proposals will lead to even more lines and delays. A rough calculation of the annual costs of delays can be made by multiplying the number of passengers affected by the additional wait by the value of their time. In 1995, travelers took approximately 390 million trips on U.S. airlines. The Federal Aviation Administration (FAA) and the airlines recommended arriving at the airport thirty minutes earlier than normal because of the security measures implemented in July. The FAA, in its calculations, uses a value-of-time estimate of $48 an hour for business travelers and $42 an hour for nonbusiness travelers in 1995 dollars. This yields an estimate of $9 billion per year in delay costs. Even if the FAA's value of time were halved, the annual cost of a thirty-minute delay would be over $4 billion. As air travel becomes more costly, people will choose alternative forms of transportation, which will likely reduce delay costs about 3 percent.

These estimates do not include the costs of hiring and training additional personnel, or acquiring, installing, operating, and maintaining new equipment to comply with the new mandates. Moreover, the estimates do not include the lost profits that airlines are likely to incur in the short-term, nor do they include the welfare losses to air travelers who switch to other modes of travel. For these reasons, the $9 billion estimate probably understates the true cost. The assumed delay time, however, may be greater than the actual delays experienced by travelers. If, say, the current policies resulted in a fifteen-minute delay (rather than thirty), the delay costs would be halved. By the same token, new policy proposals could easily lead to a doubling in delay costs.

The Gore Commission proposed twenty near-term changes to airport security, which are summarized in Table 1. The table reveals that almost no information has been provided on the expected costs of the various recommendations; instead, preliminary budget requests have been provided. Congress incorporated these budget requests into two 1997 appropriation bills and the FAA Reauthorization Act that the president signed into law. Some of these recommendations were implemented immediately; others will be implemented shortly as a result of the passage of these laws.

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WINOKUR AND DYNCORP, HARVARD, ROBERTS CONNECTIONS....

Our new Supreme Ct Nominee: His wife is big in satellite systems; her company is targeting Iraq
by margieburns at 11:08AM (CDT) on July 20, 2005
http://www.margieburns.com/blog/_archives/2005/7/20/1054893.html

Yet another first for our boundary-breaching White House: for the first time in American history, we're going to have a justice on the high court whose spouse facilitates financing and putting together global satellite systems.

Also, the company in which she is a partner, Shaw Pittman, emphasizes among other things its expertise in facilitating business in Iraq:

We offer one-stop service to clients pursuing projects in Iraq, from solicitation and RFP counseling to working with key government and multilateral agencies, and from initially penetrating the Iraqi marketplace to final project implementation. Our attorneys are recognized as leaders in their fields, and at the cutting-edge in a variety of disciplines relevant to Iraq reconstruction. A number have served in senior government positions in key agencies including the Departments of Transportation, Navy, Justice and Commerce, as well as the Agency for International Development (USAID) and the World Bank.
http://www.pillsburylaw.com/go/areamaster.nsf/practices-all/International:%20Iraq%20Reconstruction

Iraq has not yet been able to achieve an integrated communications service (many Iraqis don't even have their electricity back, yet.) By numerous accounts, satellite communications/networks loom as a large unfilled need in Iraq. Jane Sullivan Roberts credentials are solid, and business-wise, her walk in life is largely helping clients put together and get financing for satellite systems, according to her company bio:

Ms. Roberts practices with the firm's communications and global sourcing groups, concentrating in representing clients in sophisticated transactions involving technology. She has extensive experience in representing clients in the buying and selling of space-related goods and services, including companies involved in the development of multi-billion dollar global and regional satellite systems. Ms. Roberts' experience also includes representing clients in information technology outsourcing transactions; software licensing, development, and maintenance contracts; and professional services arrangements. Prior to 1992, Ms. Roberts practiced litigation in a wide variety of matters before various courts and decision-making bodies, including large international commercial arbitrations involving nuclear power plants before the International Chamber of Commerce. http://www.pillsburylaw.com/Go/bios.nsf/professionals/Jane%20Sullivan%20Roberts

(I like that afterthought re nuclear power plants. Shades of Homer Simpson.)

The following statements by and about Ms. Roberts come from an article titled High flyers, high margins, high society and space VC, in the publication Space Business International (4th quarter 2000):

Shaw Pittman is a composite organization, in which teams of associates, corporate finance partners, technology procurement and transfer partners, intellectual property strategists, corporate deal-makers work together with the clear aim of dominating Washington's high-tech legal world. They've made a good start - hands on involvement already in 25 percent of all metropolitan VC closures in Q1-2000.

Despite the March 2000 downturn in US stock markets, there is still lots of VC money available, says Roberts. But the way the money is channelled has changed - it's harder to fund business-to-business dot.coms, especially where you have to build a brand; and likewise for business-to-consumer deals. But there is still plenty of money left to fund wireless technologies, Internet infrastructure, next generation networking devices and b2b software plays.

ËœAnd Washington DC is cementing its position as an international hub of the commercial space and satellite industry. In terms of corporate headquarters, we have many major players, including Loral Cyberstar, Astrolink, Skybridge, Hughes Spaceway, Final Analysis, Ellipso, INTELSAT, COMSAT, WorldSpace, and XM Satellite Radio. Not to mention the major aerospace players

Ms Roberts specific targets are the procurement of satellite systems and related services and technologies such as launch services, launch insurance, terrestrial networks, terminals, call centers and billing systems. As a technology transaction lawyer, my role is to use contractual techniques to minimize my client's completion risk, that is the risk the satellite system will not be completed - designed, built and deployed within established performance, cost and schedule objectives. For a company seeking venture capital, it is critical to demonstrate to potential investors that the company is successfully managing its completion risk.

[This link is down, but you can get to the article by clicking cached in a google search.]

A quite good, concise article by Ms. Roberts, on the risks of putting together a new satellite system and attempting to break into the market, is found at
http://www.pillsburylaw.com/go/News.nsf/news-publications-all/52D9281973A9BE6B85256FD40066ADE8?OpenDocument

The risks of building and financing a new satellite system fall into three broad areas: market, regulatory and completion. Market risk is the risk the target market does not want or cannot pay for the satellite services offered. Regulatory risk is the risk of not obtaining all regulatory approvals required to build and operate the satellite system, such as for orbital locations allocated by the International Telecommunications Union, spectrum licensed by the satellite operator's "host" or "home" government, and "landing rights" granted in each country that will receive the new satellite service. Completion risk is the risk the satellite system will not be completed designed, built and deployed within the established performance, schedule and cost objectives.

(from Satellite Finance, Issue 16)

Perhaps it will surprise few people that Shaw, Pittman, where Ms. Roberts is a partner, is offering its services for a newly privatized Iraq:

Pillsbury's Iraq Reconstruction Practice is mobilized to offer clients strategic legal advice in their postwar reconstruction efforts. Comprised of lawyers from several offices and backgrounds with relevant legal, industry and regional experience, the team is well poised to support virtually every endeavor in post-war Iraq, including:

Infrastructure development, construction and procurement

Intellectual property, technology and outsourcing services [etc.]
http://www.pillsburylaw.com/go/areamaster.nsf/practices-all/International:%20Iraq%20Reconstruction

The company's web site does not indicate that Ms. Roberts is on its Pillsbury Iraq Reconstruction Team. A call to the company to inquire whether she has yet had clients/projects in Iraq has not yet been returned. Stay tuned.

Meanwhile, the nominee husband's numerous investments also include Shaw Pittman. One wonders whether a Justice Roberts would have to recuse himself on any cases involving Iraq, including cases about profiteering; procedure re detainees rounded up in Iraq; Iraq contract fraud; and/or regulatory or other violations by satellite systems companies that hired his wife's firm or his wife herself.

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