It seemed like a good idea at the time because it was a good idea at the time.

But on the very same day that it was brought to the public's attention, the Pentagon's Policy Analysis Market proposal was removed from the agenda. The chorus of boos emanating from Washington was deafening; politician after politician, it seemed, had something severe to say about a scheme involving speculators betting on the likelihood of terrorist attacks, assassinations and coups.

Indeed, at first glance this seems a rather bizarre idea. People betting on the possibility of disasters? People profiting from correctly predicting other people's misery? And at the governmental level? What kind of crazy-ass idea is this?

Well, as George Bernard Shaw once said, "All great truths begin as blasphemies." And this particular blasphemy is no different.

The proposal for a futures market to help the military and policy planners with their intelligence and foresight efforts, where information is derived from a trading floor in which futurist pundits put their money where their mouth is, is actually a very good idea -- an idea which in reality expands on intelligence efforts already undertaken by the US military, and in a far less messy and inefficient manner.

Moreover, the knee-jerk reaction from hyper-institutional and conservative Washington reveals yet again that new and innovative ideas -- particularly those ideas that are out-of-the-box -- are unwelcome. This tendency, this propensity that is guided by the so-called wisdom of repugnance, has resulted in the strangulation of a promising project.

Fortunately, it's hard to keep good ideas down, as they tend to take off when the time is right. As far as the futures market is concerned, the time is quite obviously not now. But once the strength of the idea becomes more obvious, people will take notice, and then take action.

What's the big idea?

The notion of a futures market, also referred to as idea futures, is nothing new.

Back in 1988, Robin Hanson of George Mason University came up with the idea of a futures market. Hanson, an economist, transhumanist, and Extropian thinker who speculates about alternative institutions, took the idea and teamed up with a small business in California called Net Exchange. Eventually, the US Government's Defence Advanced Research Projects Agency offered US$750,000 to Hanson and Net Exchange to help them deal with events in the Middle East.

DARPA's Information Awareness Office has taken the threat of terrorism very seriously, especially after the events of 9-11. "The most serious asymmetric threat facing the United States is terrorism," declares the IAO's Website, "a threat characterized by collections of people loosely organized in shadowy networks that are difficult to identify and define."

To counter this danger, the IAO announced its intentions to develop technologies that will allow for an enhanced understanding of the intent of these networks, their plans, and to potentially define "opportunities" for disrupting or eliminating the threats. "To fight terrorism," says the IAO, "we need to create a new intelligence infrastructure to allow these agencies to share information and collaborate effectively, and new information technology aimed at exposing terrorists and their activities and support systems. The key to fighting terrorism is information."

As part of this initiative, DARPA took Hanson's ideas and pursued them as a way to acquire this valuable information. A recent statement put out by the Defense Department affirmed that markets are extremely efficient, effective and timely aggregators of dispersed and even hidden information. "Futures markets have proven themselves to be good at predicting such things as elections results," reads the statement. "They are often better than expert opinions."

More to the point, the Pentagon called the idea a new way of predicting events and part of its search for the "broadest possible set of new ways to prevent terrorist attacks." And specifically, the overview of the plan revealed a focus on the economic, civil and military futures of Egypt, Jordan, Iran, Iraq, Israel, Saudi Arabia, Syria and Turkey and the consequences of US involvement with those countries.

Had the plan gone into effect, speculators would have bet on such things as the likelihood of a coup in Saudi Arabia, ongoing guerrilla warfare in Iraq or a military junta in the Philippines. Betting results, it is contended, would have proven insightful and revealing for military intelligence gatherers and policy planners. Information that wouldn't normally be revealed would likely appear, and people "in the know" would suddenly be compelled to divulge sensitive information.

But things did not go according to plan, and the proposal was met with near universal outrage and condemnation by politicians. In response, Deputy Defense Secretary Paul Wolfowitz announced on July 29 that the project was to be abandoned.

An un-American idea

The negative momentum that arose in reaction to PAM was instigated primarily by two senators, Byron Dorgan of North Dakota and Ron Wyden of Oregon. The two "blew the whistle" in a letter to DARPA's John Poindexter declaring that, "The American people want the Federal government to use its resources enhancing our security, not gambling on it."

Dorgan claimed that the idea was so outlandish that he had trouble persuading people that it wasn't a hoax. He referred to PAM as a government sponsored "betting parlor" where people could go in and bet on the assassination of American political figures. Wyden thought the idea both ridiculous and grotesque.

Not one to miss out on a no-brainer political opportunity, Senator Hilary Clinton chimed in as the mob coalesced, declaring the idea a "market in death and destruction, and not in keeping with our values."

But while these blanket condemnations made their way through the press and into the public's consciousness, the merits of PAM were completely lost.

No, the Pentagon and DARPA had not gone completely berserk as many implied.

A better way

Essentially, the demise of PAM will rob the country's intelligence agencies of a tool that has a strong history of accurately predicting future events -- which, however grim, is a rather important component as far as foresight activities are concerned.

Governments, through their various intelligence agencies and strategies, are already spending copious amounts of money trying to predict the future. They do this through such things as spy satellites and espionage.

But intelligence gathering is difficult, expensive, dangerous and time-consuming. A futures market would help alleviate these inadequacies by tapping into the expertise and collective wisdom of specialists. It would make the messy business of intelligence gathering cleaner, safer and more accurate.

Similar models that involve trading floors have fared well predicting such things as gas prices, election results and movie ticket sales. The Foresight Exchange was one of the first general Websites that allowed users to introduce new ideas or predictions to bet on. In 1995 the site won the Prix Ars Electronica Golden Nica as the world's best Website, and today more than 1,500 players bet virtual money on more than 200 questions of their choosing.

Others examples include the Iowa Electronic Markets, in which participants bet on election results and other political events, and the Hollywood Stock Exchange, in which users try to predict Oscar winners. And there are organizations already in place that effectively do what PAM was supposed to do, such as TradeSports.

What these markets have in common is that they tend to be highly accurate predictors. It seems that when money or reputation is on the line, the efficacy of predictions increases.

Exaggerated concerns

A common concern among the PAM critics is that individuals could conceivably profit from contrived events. As Senator Wyden stated, "This appears to encourage terrorists to participate, either to profit from their terrorist activities or to bet against them in order to mislead US intelligence authorities."

Fortunately, this fear doesn't carry much weight. If an opportunistic terrorist were to profit from his own insider scheme, he would be revealing his hand to investigators and greatly risk exposing himself. In fact, one could argue that this type of enticement may actually help catch established terrorists and any would-be terrorists.

Admittedly, the idea of anonymous trades is problematic. Preferably, anonymous prognosticators would not be allowed so that an audit trail could be established and tracked. And it is unlikely that terrorists could use a large and long-running futures market as a way of proliferating misinformation; they would simply be unable to generate enough influence in the market environment to make a difference.

But more realistically, idealistic terrorists are not economic opportunists; instead, they tend toward religious fanaticism and radical nihilism. They're not interested in profiting from their acts in the fiscal sense.

Others are repulsed by the idea that people will profit from correctly predicting atrocities and disasters. While it's true that some will profit for their prescience, this facet only represents half of the story -- and the least interesting and important story at that. The germane aspect of the futures market is that it gathers important intelligence, offering policy makers an opportunity to foresee an event and plan accordingly.

Yes, the kind of intelligence that politicians would seem to want to have. But freshly stung from the bitter sting of 9-11, most US politicians don't want to deal with anything that might potentially upset a still reeling American populace. This potato is way too hot.

Politics gets in the way

Robin Hanson understands all too well what happened to his project of 15 years: Politics. "The nature of intelligence is that you are paying people to tell you something unpleasant," says Hanson. "But if you want information about such things, I don't see how [PAM] is morally better or worse than any other way of paying for such information."

Instead, "Our policy-makers and media rely too much on the 'expert' advice of a self-interested insider's club of pundits and big-shot academics," he argues. "These pundits are rewarded too much for telling good stories, and for supporting each other, rather than for being 'right.'"

But this issue is far from over, and the idea of a futures market will live on in the private sector, including at such sites as TradeSports.

And not only are futures markets a good idea, they're an expression of free speech. As Hanson says, "You should have a free speech right to bet on political questions in policy markets, and we could even base a new form of government on idea futures."

Now, I'm not a gambling man, but if I had to put some money down on a prediction for futures markets, I'd bet in favor of the good idea whose time will eventually come.