THE IDIOCY (AND WISDOM) OF A TERROR-FUTURES MARKET

Business
Bob Rayner

03 August 2003
The Richmond Times-Dispatch
City
D-2

Over the years, I've decided that all of us are capable of generating, at 
least on occasion, something approaching genius. At the same time, I've also 
figured out that we're all capable of descending into utter idiocy.

And sometimes we can do both at the same time.

A case in point: revelations last week that the Pentagon was developing a 
futures market based on terrorism and political events in the Middle East.

Now, as a devoted believer in the beneficial qualities of free markets, I 
was intrigued. But, I must admit, I was also a bit appalled.

I think it's safe to say that "appalled" best describes the overwhelming 
response among politicians and the media. So the Pentagon dropped the idea 
like a live grenade.

Speculating - with real dollars - on future terrorist attacks, regime 
changes and political assassinations does offend most standards of common 
decency.

And it invites all kinds of mischief - and worse.

Someone determined to fix the game could, possibly, invent plausible but 
false terrorist threats. It's even conceivable that some sick soul could 
profit from launching an attack - say, anthrax delivered through the mail.

Now, having dispensed with all the very sound reasons for not creating a 
futures market for terror, I would submit that for all its idiocy, the idea 
also contains grains of genius.

Markets compile the accumulated knowledge of all their participants. If the 
20th century taught us anything, it's that - to the consternation of the 
top-down, government-knows-best crowd - diffuse decisions by free people 
almost always trump those of an elite group of "experts."

Financial markets tend to maximize prosperity and allow the wealth to spread 
across broad swaths of society. Why? Because the market is able to 
accumulate and interpret nearly infinite tidal waves of information, which 
it uses to steer capital, resources and labor to the places where it can do 
the greatest good.

The Pentagon's scheme sought to create an early warning system, a vast 
amalgamation of changing, measurable data, fueled by savvy traders buying 
and selling futures.

But the real genius of the plan lay in its ability to lure terrorists and 
their associates into tipping their hand by appealing to their greed and 
arrogance.

It's not hard to imagine terrorists conspiring to compound an attack on 
America by turning a profit on it. The irony of making money from the 
despised capitalists would be almost too delicious to resist.

But as the terrorists' - or their surrogates' and accomplices' - purchases 
pushed prices higher for futures tied to a specific type of assault, the 
authorities would gain invaluable clues about when, where and how the enemy 
planned to attack us, the precise kind of information we seem to have such a 
hard time gathering these days.

It's a supremely elegant theory.

Would it have worked the real world? Hard to say. Now we'll never know.

I guess I'm glad the folks at the Pentagon nixed their plan to create terror 
traders. Still, I'm encouraged that they're taking risks and indulging in 
feats of extreme imagination to develop bold new ways to win the war on 
terrorism.

This one didn't work out, but the next may end up saving lives.

Contact Bob Rayner at (804) 649-6073 or brayner@timesdispatch.com