How we're scammed by our fear of terrorism

These days there aren't many scams bigger than all the fuss we're making about the threat of terrorism coming to our shores.

What makes the scam worse is that we bring it on ourselves.

But I'm not first to point out that this degree of concern is totally out of whack with the actual risk of being attacked.

In the past two decades, just three people have died as victims of terrorist attacks (broadly defined) in Australia. They were the two victims of the Martin Place siege and the NSW police accountant Curtis Cheng.

When Malcolm Turnbull was announcing the formation of the mega Home Affairs department last week, which he insisted was all about improving the domestic security response to "the very real threat of home-grown terrorism that has increased with the spread of global Islamist terrorism", he said that intelligence and law enforcement agencies had successfully interdicted 12 imminent terrorist attacks since September 2014.

There's no way of checking that claim, nor guessing how much harm would actually have transpired, but if that figure of 12 impresses you, you're making my point. Relative to all the other threats we face, it's chicken feed.

Professor Greg Austin, of the Australian Centre for Cyber Security at the University of NSW, has written that more Australians have died at the hands of police, lawfully or unlawfully, in 10 years – at least 50 between 2006 and 2015 – than from terrorist attacks in Australia in the past 20 years.

You reckon terrorism's a great threat? What about the more than 318 deaths from domestic violence just in 2014 and 21015?

The former senior bureaucrat John Menadue has written that Australia's alcohol toll is 15 deaths and 430 hospitalisations a day.

The journalist Bernard Keane says that between 2003 and 2012, there were 2617 homicides and 190 deaths from accidental gun discharges. More than 130 rural workers died from falling off vehicles, 206 died from electrocution and 1700 Indigenous people died from diabetes.

Why do we so greatly overestimate the risk of being affected by terrorism? Many reasons.

Part of it is that, as psychologists have demonstrated, the human animal is quite bad at assessing probabilities. We tend to underestimate big risks (such as getting killed on the road) and overestimate small risks (such as winning Lotto or being caught up in terrorism).

We tend to assess the likelihood of a particular event according to its "salience" – how well we remember hearing of similar events in the past and how much notice we took of them.

Trouble is, most of what we know about what's happening beyond our personal experience comes to us from the news media, and the media focus almost exclusively on happenings that are highly unusual, ignoring the everyday occurrences.

They do so because they know this is what we find most interesting. They tell us more about the bad things that happen than the good things for the same reason.

The media know how worried and upset we get by terrorist attacks, so they give saturation coverage to attacks occurring almost anywhere in the world.

The unfortunate consequence is we can't help but acquire an exaggerated impression of how common terrorist incidents are and how likely it is one could affect us.

But it's not all the media's fault. Of the many threats we face, we take special interest in terrorism because it's far more exciting than boring things like road accidents or people drinking too much.

The other special, anger-rousing characteristic of terrorism is that it comes from overseas and thus stirs one of our most primeval reflexes: xenophobia.

Our response to terrorism is emotional rather than thoughtful. And that leaves us open to manipulation by people with their own agendas.

After the media come the politicians. It's conventional wisdom among the political class that security issues tend to favour the Liberals over Labor. That's why conservative politicians are always trying to heighten our fear of terrorism (see Turnbull above) and why Labor avoids saying anything that could have it accused of being "soft on terror".

After the politicians come all the outfits that make their living from "domestic security" – spooks, policy people, equipment suppliers and myriad consultants – all of them doing what they can to keep us alarmed but not alert.

Domestic security is probably the fastest-growing area of government spending. None of the budget restraint applies to it. That's partly because of public pressure, partly because of the security industry's success in wheedling money out of the pollies, and partly because, should some terrible event ever happen, the pollies want to have proof they tried their best to prevent it.

What's this got to do with economics? Everything. Economics is about achieving the most efficient use of scarce resources.

We face many threats to life and limb and are right to expect the government to do what it can to reduce them. But there's a limit to how much tax we're prepared to pay, and the more money we lavish on the tiny risk of local terrorism, the more we underspend on many far greater risks to our lives.

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Terrorism: we must learn to think like economists

I've spent a lot of my life arguing that the hard-headed "rational" analysis so beloved of economists needs to be tempered by human emotion. But it also works the other way: sometimes we need to curb our emotional reactions and force ourselves to think coolly about what we really want and the most sensible ways to go about getting it.

I think this every time we're faced with another terrible act of terrorism. The first emotions are shock and horror, soon followed by a desire to hit back, to find a government to blame and demand action from. Promise us this will never be allowed to happen again.

Such reactions are only human, but when we surrender to them, we leave ourselves open to manipulation by the unscrupulous – and I don't just mean the terrorists.

But that's a good place to start. Terrorism is practised by the weak to get under the guard of strong. Their goal is not so much to terrify us and weaken our resolve as to provoke us into doing something stupid; something that damages us and benefits them.

Vengeance, retaliation, belligerence – these are common emotions at times like this, particularly among men. The great temptation at present is to send all our military might to the Middle East and defeat these forces of evil once and for all.

But how many times have we tried that without it working?

It's not easy to defeat your opponent so completely that no problem remains. It's much easier to make a strike that doesn't fix anything and actually makes things worse.

It never crosses the mind of the bellicose among us that the other side may be hoping to provoke us into hitting back. Why? To make them into martyrs, to show it's Muslims against the world, and to win them support from young potential fighters or terrorists in our midst.

Even the heroes who indulge themselves by shouting at women wearing headscarves are helping the side they hate.

It's arguable that, in its desire to punish someone after the terrorist strikes of September 11, 2001, the US has made things worse for itself and the rest of us. It's doubtful how much lasting benefit will result from all the lives lost and money spent in Afghanistan.

And the decision to invade and occupy Iraq has achieved little, but has destabilised long-standing enmities in the Middle East, greatly increased hatred of the US and, as the rise of Islamic State demonstrates, created a quagmire from which the Americans can't extract themselves.

No one's allowed to say it, but it's obvious: every time Australia muscles its puny way into these problems on the other side of the world – as if the Americans and Europeans need our help – we increase the risk of terrorism Down Under.

It's funny that the people who worry most about the "unsustainable" growth in government spending, tend to worry least about ever-increasing spending on defence, policing, security and surveillance.

Years of contact with economists has made me hyper-conscious of people using the media to push their vested interests. Almost all the alleged terrorism experts broadcast by a wide-eyed media at times like these seem to have a single message: do more, spend more. Oh, the risks we face.

All the understandable attention the media devote to terrorist attacks, anywhere in the world, can't help but leave us with an exaggerated impression of the risk of such an attack happening here.

A few years ago, Mark Stewart, a professor of civil engineering at my own University of Newcastle, estimated that the risk of an Australian being killed in a terrorist attack is one in 7 million each year, which is about the same as the risk of being struck by lightning.

It's not possible for our politicians to guarantee nothing bad will ever happen to us. But it is possible for them to cover their backsides by spending lots of money, progressively diminishing our freedoms in the name of protecting them, and putting on a show at airports.

A timely article in this week's issue of The Economist says that "a lot of what passes for security at airports is more theatrical than real".

Despite the likelihood that the recent Russian plane crash over the Sinai desert was caused by a bomb in the hold, attempts to blow up airliners are quite rare, it says. And the enhanced airport security introduced after 2001 has played no role in thwarting any attacks.

The ban on carrying liquids on board was introduced in 2006 after a plot to bring down several planes crossing the Atlantic was foiled thanks to a tip-off. In the time since then, nobody has been caught trying to get liquids on board to combine into a bomb.

Nor have any would-be bombers been intercepted since the requirement for passengers to remove their shoes was brought in, after a shoe bomber trying to set off an explosion was subdued by passengers.

The US Transportation Security Administration has a budget of more than $US7 billion ($10 billion) a year, but this year government inspectors succeeded in getting fake bombs and weapons through the screening process in 67 out of 70 tests in airports across the US.

So maybe no passengers have been caught doing the wrong thing because the security is such an effective deterrent, or maybe it's largely a showy waste of our time and money.

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The game pollies play rather than governing

It came to me while I was lying awake the other night: the business, union and community worthies at last week's National Reform Summit thought the way to make progress was to hammer out a compromise proposal most people could agree to. You hand it to the government, the opposition agrees, they whack it through parliament and problem solved.

But that's not the game Tony Abbott is playing.

He doesn't want agreement, he wants disagreement, but with the government on the majority side and its opponents on the minority side. That way, you get re-elected and maybe, as a bonus, there's some benefit to the country.

Pretty bad? Here's the worst part of my early-hours revelation: the other side's no better.

This is the way both sides have been playing the political game for years. It's just more obvious now because Abbott doesn't play it with as much finesse as his predecessors.

In Canberra, the game is known as "wedging", but is better described as "wedge and block". Whoever's in government thinks of issues acceptable to their side – and popular with voters – but inconsistent with the other side's values and thus likely to divide it. Ideally, the others oppose you and so get themselves offside with most voters.

Failing that, the pragmatists on the other side – who see perfectly what you're up to – reluctantly go along with you, but a more principled minority don't, so you've sown dissent among your opponents. Always a bad look to the electorate.

If the practitioners of expedience get their way without noticeable demur from the keepers of party principle, the wedge has been successfully blocked and you have to go away and think up another one.

How do you come up with a good wedge issue? You consult those polls that regularly ask voters which party is better at handling particular issues. Study these results and you find voters have highly stereotypical views about the parties' strengths and weaknesses.

The Liberals are better at what you'd expect a penny-pinching bosses' party to be better at: managing the economy, fighting inflation, keeping taxes and interest rates low and controlling the budget. And, of course, keeping the country safe from threats to our security.

Labor, on the other hand, is better at what you'd expect a big-spending workers' party to be better at: unemployment, social security, health, education, the environment and industrial relations.

In the months leading up to an election, each side manoeuvres to establish as key election issues problems the voters regard them as better at dealing with. They try to neutralise – block – those issues the other side is pushing that would leave them at a disadvantage.

The sainted Julia Gillard wasn't too saintly to use her two most popular (and expensive) measures to try to wedge Abbott at the 2013 election.

She proposed a 0.5 percentage point increase in the Medicare levy to help pay for the national disability insurance scheme, hoping Abbott would object and so could be accused of opposing greater assistance to the disabled.

She delayed the Gonski reforms to school finding, hoping Abbott would defend private schools and she could make it a key election issue.

Abbott blocked both wedges. He quietly agreed to the tax increase which, becoming uncontentious, was never mentioned again. On the Gonski reforms he belatedly professed to be on a "unity ticket" with Labor. But the delay meant many Liberal state governments declined to sign up to the scheme so close to an election.

Abbott's efforts to wedge Labor have come thick and fast in recent days. He asked President Obama to ask us to join in the US bombing of Syria because he was hoping Labor would object to such an ill-judged move. It didn't.

In another effort to increase public concerns about national security, he propose stripping certain Australians of their citizenship, hoping Labor would object and so allow him to accuse it of being "soft on terrorists". It didn't.

Abbott is anxious to portray his government as big on "jobs and growth". He cooked up a story about greenies using the law to block a new coal mine in Queensland and proposed amending the federal environment protection act to counter "green sabotage", hoping Labor would object and he could accuse it of putting the environment ahead of jobs.

As became clear at last week's reform summit, there's now widespread agreement that superannuation tax concessions to high-income earners are too generous and need to be cut back, with big savings to the budget.

Earlier this year, Joe Hockey had Treasury working on super changes when Labor announced it would take such a policy to the election. Abbott immediately embarrassed Hockey by insisting the government would countenance no changes to super or any other tax concessions.

Labor may stand for higher taxes, he told us, but the Libs stood for lower taxes. He made it clear last week that, come hell or high water, the government would go into next year's election promising tax cuts.

Great wedge. One small problem: all Labor has to do to block it is promise to match it – just as it did when John Howard tried the same thing at the 2007 election.

Bad policy, but what of it?

If you wonder why our politicians don't seem interested in good government, their addiction to playing the wedge-and-block game explains a lot.

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Security scare intended to hide economic failure

Am I the only person who isn't cringing in fear, looking for a rock to hide under and hoping Tony Abbott and Peter Dutton will save us from the tide of terrorism surging towards our shores?

As is their wont, the media are enthusiastically indulging our desire to dwell on all the gruesome details of a spate of terrorist acts in faraway countries of which we know little.

But this seemingly innocent nosiness is leaving us with a quite exaggerated impression of the chances of our ever coming into contact with such an event.

Apparently, all you have to do to be in mortal danger is attend the making of an ABC current affairs program. It's a field day for any attention-seeking nut of Middle Eastern background.

Would you say our Prime Minister is seeking to calm our overblown fears or is playing them for all he's worth?

Precisely. And I'll tell you why. Because he's discovered he's not much chop at leadership - at inspiring us with a vision of a better future, at explaining and justifying necessary but unpopular measures - but he is good at running scare campaigns, to which the Aussie punter seems particularly susceptible.

But, above all, because he wants to divert our attention from the hash he's making of managing the economy.

In opposition, and facing a Labor government that lacked all confidence in its own ability as an economic manager, Abbott assured us the Liberals had good management in their DNA. I thought he had a point, but what we didn't discover until too late was that he and his chosen Treasurer just didn't have that gene in their bodies.

They started by telling us that, apart from the immense damage being done by Labor's carbon and mining taxes, the economy's big problem was the budget, something they, being Libs, could fix in a jiffy.

They had one go at fixing the budget, got themselves into terrible trouble in the polls, then gave up. Pretty much the sole purpose of this year's budget was to reverse their poor political standing by ditching or modifying many of their unpopular policies.

From that day to this, we've heard little more of the evils of debt and deficit. Almost all of what little improvement in the budget deficit is expected will come from bracket creep.

Fortunately, the budget deficit and the still-small level of public debt to which it has given rise was never the central, pressing problem for the economy the oppositional Abbott & Co made it out to be.

We will have to deal with the deficit eventually, but it's not pressing. And fortunately, thanks to the good offices of Peter Costello, primary responsibility for the day-to-day management of the economy was long ago shifted from the politicians to the econocrats of the Reserve Bank.

Trouble is, no matter how many more times the Reserve cuts interest rates, it's having little success in getting the economy moving at a satisfactory clip. And with more mining construction projects being completed as each day passes, the economy is in danger of drifting into recession.

It may not happen, but the possibility that it will is too high for comfort. The Reserve has been calling out for help from Canberra, but Abbott and Hockey have been turning a deaf ear, far too busy coping with the confected national security crisis.

Now we've received a very could-do-better annual report card from the International Monetary Fund. Far from urging Abbott and Hockey to redouble their efforts to reduce deficit and debt, it's telling them they have plenty of "fiscal space" relative to other advanced economies - room to increase debt - and should be doing more to encourage spending on infrastructure by the state governments.

The problem is that while the Reserve has been using too-low interest rates to get the "non-mining" private sector moving, the public sector has been doing nothing to help. Indeed, despite the incessant talk - federal and state - about the greater efforts being made to ensure the adequacy of our infrastructure, nationwide public capital expenditure actually fell by 8 per cent over the year to March.

The decline came from the state governments, not Canberra. But since it's the national government that's primarily responsible for the health of the national economy, this provides Abbott and Hockey with no excuse.

That covers the Abbott government's poor performance in the immediate management of the economy. But it's just as ineffectual in dealing with the less pressing, more structural need for us to lift our economic game if our continued material prosperity is to be assured.

Despite the ever-growing pile of reports it has commissioned on the financial system, competition, industrial relations, taxation and federalism, it's becoming increasingly clear that, having wounded itself so badly in last year's budget and still being behind a weak-led opposition in the polls, the government has no stomach for taking reform proposals to next year's election.

Economists, business people and even the government's own intergenerational report are warning that our productivity isn't likely to grow fast enough in coming years without further reform, but to no avail.

If the Liberals do have good economic management in their DNA you'd think by now they'd be turning to others among their number with greater leadership skills. But not, apparently, while they can hide behind the charade of concern about threats to national security.

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Free emotions come with a price tag

At times such as the Martin Place siege and its tragic aftermath, it doesn't help to have been trained to think like an economist, to analyse the situation as coolly and rationally as possible, keeping your emotions in check. I feel like I'm from Mars, while everyone else is from Venus.

Nor does it help to be among those who respond to such events as part of their job. Inevitably, the police, security agencies, politicians and the media see things differently from bystanders free from vested interests or responsibility.

I wonder why this event has attracted so much public attention, concern and outpouring of emotion. It strikes me that humans have emotional as well as physical muscles, for which they seek regular exercise.

When we don't have enough emotion-stirring events in our lives we seek release mainly through fiction, including crime fiction, but nothing beats the real thing.

When we express great interest and concern about the tribulations of others - when we buy flowers to lay on an impromptu shrine - we see this as heart-warming proof of our empathy and sensitivity. Our humanity. We're proud of ourselves - we care.

Sorry, but I'm sceptical. What occurs to my hard head is that had two people been killed in a car crash on the Sydney Harbour Bridge at the same time as the siege, this would have attracted little interest and no sympathy.

Why would the reaction to the events be so different? One reason is the siege's greater novelty. People die on the roads every day. Another is its greater suspense. It took 16 hours of continuous TV broadcasting by the new, just-keep-talking "breaking news" industry before the outcome was known.

And from the moment the gunman produced his black flag it became possible to jump to the conclusion the siege was a terrorist attack, as almost everyone did. This lifted the event to a new level of menace and excitement, something even people in other countries were interested in.

But to me this sounds more like entertainment than compassion.

It proved to be the criminal act of a disturbed individual seeking notoriety. Yet so invested in the spurious link to terrorism had so many individuals and organisations become that many sought to keep the terrorism theme going. Somehow a common criminal was still a terrorist.

Rather than seeking the views of security consultants and anti-terrorism trainers, I'd like to have heard more psychologists and sociologists explain why we react so emotionally to such events.

Why, since the death of Princess Di, we've taken to displaying our grief so conspicuously. I feel sorry for the families of victims - of course I do - but I don't feel I have to demonstrate it with flowers.

Being in the business, I'm conscious of how many institutions see a buck to be made, metaphorically or literally, out of heightened concern about terrorist attacks.

"Security" must surely be one of our fastest-growing industries, whether within government, in the private sector or private contracting to government. Every time we give ourselves a thrill by imagining a terrorist threat we create the conditions for more ill-judged spending on security.

Humans are well known to overestimate the likelihood of low-probability events, and fear of terrorism, or even criminal sieges, is the classic case.

After the thrill come the inquiries, the righteous indignation, the recriminations and hindsight wisdom. This is where the politicians come into the frame. You can be sure their primary motive will be to shift any blame to others.

The more they push the blame on to the police or security agencies, the more those outfits will demand more resources and more power to intrude on the rights of citizens. And don't think the taxpayer won't be forthcoming.

Politicians will promise to redouble their efforts to make us all secure. The one thing they'll never admit is that it isn't possible to ensure no one ever gets through the net, no matter how tight you make it.

Nor will they admit that, once you've covered the basics, you quickly get into diminishing returns - you have to spend more and more to achieve less and less.

But spend more they will. Why? So they've got something to point to should a genuine incident ever slip through. Making it harder for people to get bail will punish many innocent people and greatly increase prison overcrowding and costs.

Pollies love creating the appearance of action. Rushing through Parliament laws giving the security agencies powers they already have is a favourite trick. So is proving you're on the job by annoying people at airports.

We enjoy a good release of emotion, but don't doubt there'll be a tab for taxpayers to pick up.

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Terrorism. A vast cost of feeling a little more secure

Now the 10th anniversary of the terrible events of September 11, 2001, has passed, it's time for plain speaking.

You've often seen me criticise economists for their bloodless rationalism - their excessive focus on efficiency in the satisfaction of our material wants and neglect of our emotional and social needs. Yet it's possible to go too far the other way, to be too emotional and not sufficiently hard-headed in our reaction to events.

And that's just what we've been in our response to the destruction of the World Trade Centre towers. We've exaggerated the threat from terrorism and spent far more than is sensible in trying to reduce it.

As usual, we have better information on the Americans' response than on our own, similar response. But there's much to learn from a study of the American experience by John Mueller, a professor of national security studies at Ohio State University, and Mark Stewart, a professor of civil engineering at our own University of Newcastle.

In the months after September 11, it was almost universally assumed the events represented not an aberration but the start of a new era of greatly increased terrorist threat. Intelligence sources estimated there were as many as 5000 al-Qaeda operatives in America.

So, like we did, the Americans hugely increased their spending on security. They established a new Department of Homeland Security and, in the time since then, increased spending on homeland security by a cumulative $US360 billion ($348 billion). They increased spending on federal intelligence by a cumulative $US110 billion, while state and local governments increased their spending by the same amount. The private sector's increased spending on security measures is estimated to be similar.

All that totals $US690 billion. Now Mueller and Stewart add the opportunity costs of terrorism insurance premiums, passenger delays caused by airport screening, the value of lives lost because people drove to their destination rather than suffer airport delays, and other losses in consumer welfare.

That totals $US420 billion, taking the grand total additional cost since 2001 to well over $US1 trillion.

Those figures don't include the cost to US taxpayers of the terrorism-related wars in Iraq and Afghanistan. The equivalent figure for Australia (which does include the cost of the wars) is about $30 billion.

The question people often ask is, are we safer? That's a silly question. Of course we're safer. The posting of a single security guard at the entrance to one building makes us safer, if only microscopically.

The sensible question is, are the gains in security worth the amount we're paying? Or, in the words of one risk analyst, "How much should we be willing to pay for a small reduction in probabilities that are already extremely low?"

The fact is, despite the escalation in our fear of terrorism, and despite the considerable publicity given to cases where the authorities have foiled bungling terrorist intentions, there's been no great increase in terrorist attacks outside war zones.

In 2005, after years of well-funded sleuthing, the FBI and other investigative agencies admitted that they had been unable to uncover a single al-Qaeda sleeper cell anywhere in the US.

So any terrorist threat derives from small numbers of home-grown people, often isolated from each other, who fantasise about performing dire deeds and sometimes receive a bit of training and inspiration overseas.

Home-grown Islamist potential terrorists are estimated to represent one in every 30,000 Muslims in the US. Muslim extremists have been responsible for a 50th of 1 per cent of the homicides committed in the US since 2001.

Around the world, the number of people killed since 2001 by Muslim extremists outside of war zones is 200 to 300 a year. That's 200 to 300 people too many, of course.

But it's less than the number of people in the US who drown in bathtubs each year.

The increased delays at US airports because of new security procedures have prompted many people travelling short distances to drive rather than fly.

But driving is far riskier than air travel and the extra road traffic is estimated to result in 500 or more extra road deaths each year.

More than 100 Australians have been killed by terrorists since 2001. But all of them have been overseas, the majority in the Bali bombing of 2002. There have been no terrorist attacks in Australia, though our security agencies claim to have foiled four "mass casualty events".

Stewart says the risk of an Australian being killed in a terrorist attack is one in seven million each year, which is about the same as the risk of being struck by lightning.

Why have we spent such huge sums trying to reduce such a small risk? And why have governments paid so little attention to whether we're getting value for money, especially at a time when budgets are tight and so many worthier causes are going begging?

Partly because we demand it of them. As someone said, "we have come to believe that life is risk-free and that, if something bad happens, there must be a government official to blame". Apart from the desire of security forces and spooks to work in a growth industry, politicians face distorted incentives. It's safer to spend more and risky to spend less.

Osama bin Laden's stated goal in launching his attack and threatening more was to lead the US into bankruptcy. He didn't succeed, but he has provoked a reaction that's contributed significantly to the US government's severe budgetary problem, which seems likely to cripple the American economy for the rest of the decade.

Meanwhile, we're left with security measures at airports and elsewhere that do more to inconvenience the public than the terrorists and amount to little more than security theatre.

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