I just read a good chunk of John Mueller's Overblown: How Politicians and the Terrorism Industry Inflate National Security Threats, and Why We Believe Them. It's a mighty blow against the most powerful form of pessimistic bias that's afflicted the U.S. during the last five years: fear of terrorism.
Mueller makes a powerful case that terrorism is the asbestos of foreign policy: a minor problem, blown out of proportion in defiance of all statistics, and used to rationalize policies that increase the risk. Read it.
I am wary of this line of argument - because as a young man I was profoundly skeptical about the Cold War threat of the Soviet Union; now I feel that I was mostly wrong and that the 'military-industrial complex' was mostly right. I think that the Cold War really was a war, and that people like my younger self who disbelieved this were guilty of wishful thinking.
If you were predicting the future of terrorism in the US, say, the day before the first WTC bombing in 1993, what would you have predicted? Would you have said that the probability of the WTC being hit twice was high? What about the other acts of terrorism, including Oklahoma City (people forget about that one. Terrorism threats aren't just from jihadists). What about the Khobar Towers, the Cole, Madrdid, London?
There's been a lot of terrorism in the last decade and a half. Maybe we're overeacting, but I don't think so.
Probably a better phrase is "Overreaction".
The 9/11 terror attacks severely damaged the global economy, mostly due to the psychology of reaction to the terrorism.
Certainly, terrorism with guns and bombs is utterly dwarfed by infectious disease, motor accidents, etc. The biggest economic damage comes from people changing their behavior in response to a perceived threat, sure. But if you give a terrorist a place to stand, he can move the world: I seem to remember something about a fellow named Gavrilo Princip in the 20th century.
Engineered plagues and nuclear weapons, acquired on the black market, or with the secret assistance of some state, could cause enough damage to have quite significant direct effects.
I would still agree that it was a gross misallocation of resources to spend into the 11-digit range on invading Iraq, rather than putting billions into better vaccine technology (for pandemic flu, malaria, HIV, TB, etc), securing Soviet nukes, developing better sensors for ports, etc, but I wouldn't dismiss the threat entirely.