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LOS ANGELES — An overreaction by the U.S. government could cause the total cost of the terrorist attacks to exceed a trillion dollars, according to a report released Thursday by the Milken Institute. 

The report, titled “Assessing the Costs of Terrorism,” warned that many critical policy choices have yet to be made, with the most important being the extent of the military response, the methods used to obtain domestic security and the means to compensate industries and families affected by the attacks. 

If imprudent choices are made, according to economist and report author Peter Navarro, it could cost the country more than just the estimated billions of dollars in property damage and lost economic output. 

“The direct cost of the destruction of the property and aircraft represent a very small sliver of the overall cost,” he said Thursday night. “If we mishandle this crisis, it could cost us $2 trillion a year beginning in 2011.” 

That number was gained by the simple difference between an annual growth rate of 2 percent and a more robust 3.5 percent, he said. 

Whether this happens will be tied to current fiscal policy and actions relating to the nation’s recovery. In the report, Navarro warned government leaders to be cautious in their fiscal and monetary policies. 

“The clear danger is that we’ll panic and overstimulate the economy,” he said. “We could come out of the recession quickly, but that could trigger a roller coaster of recession and inflation.” 

Navarro said government leaders face a strategic choice of whether to divert resources from productive capital to protective capital, from spending money on building instead of surveillance. 

“As you try to drive the risk of terrorism down, the cost goes to infinity,” he said. 

Reining those costs in, he said, will be a matter of resisting the temptation to go overboard on safety measures. 

In the report, published in the current issue of the quarterly Milken Institute Review, Navarro said the government can choose to double the number of its sky marshals to 40,000 at a cost of $100 million or put two marshals on every plane, creating a bureaucracy many times the size of the FBI and costing $6 billion. 

He also urged policy leaders to consider the impact of increased airport security on passenger delays, which he said could cripple the airlines. 

“The backbone of the airlines is the business traveler,” he said. “When you add a considerable amount of time, you are raising the cost to the business. And, time is money.” 

The report also measured the costs of the attacks in such areas as property damage, increased airline security, lost economic output, subsequent bailouts of the airlines and reduced tax revenues. 

Navarro estimated that the death toll translates into an economic cost in the range of $40 billion, taking into account income scale and education of the thousands of people who died, as well the emotional pain and income loss suffered by their families. 

Property damage will exceed $10 billion and, in the days immediately following the attacks, $6.4 billion was lost in advertising, airline and hotel revenues, the report said. 

The Milken Institute is a nonprofit think tank focusing on four major issues, the global economy, capital markets and financial institutions, the role of education and human capital, and regional economics and demographics.