SHOW THE BIG STORY WITH JOHN GIBSON (1733)

                             July 29, 2003 Tuesday

HEADLINE Interview With Mike Curb, Robert Hanson

GUESTS Mike Curb, Robert Hanson

BYLINE Gregg Jarrett

BODY

   JARRETT A federal judge today striking down part of California's recall law,
making it tougher or easier, I should say, for voters to decide the state's next
governor. Republicans have been leading efforts to recall Governor Gray Davis
there, but there is some concern that a Republican victory could backfire on the
GOP.

   Mike Curb is former lieutenant governor of California and that's today's big
question. Mike, welcome. Are Republicans biting off more than they can chew
here?

   MIKE CURB (R), FMR. LT. GOV. OF CALIFORNIA Oh, absolutely not. I think it's
a tremendous opportunity, particularly given the complexion of the overall voter
structure in California. It's very hard for a Republican to get elected. I was
the last Republican lieutenant governor and it's been over 20 years. So, I think
it's very, very tough for a Republican to get elected. And I think this is an
opportunity for the Republican Party to take over the governorship of the
largest state.

   JARRETT Let me take issue with you on one thing. I mean, you had 16 years of
Republican governors with Deukmejian and Pete Wilson, right? So, it can't be
that tough.

   CURB That is correct. But at this point in time, today, when you look at the
last eight years, the last six years, I guess of Gray Davis, and you look at the
rest of the constitutional office holders and the composition of the
legislature, you have a Democratic-controlled legislature, both houses, and
every single constitutional office controlled by the Democrats. And looking at
the landslides, you saw how Gore beat Bush so substantially in California. I
would say that it is very tough today for a Republican to get elected in a
normal election.

   JARRETT You know, there was an interesting piece, you may have read it in
the "Christian Science Monitor," it said California is politically dysfunctional
and completely unmanageable. In fact, I'll read a quick quote, a tangle of
political reforms and demographic changes have turned California into a state of
confusion. The golden state, governors have quickly learned is nearly
ungovernable. Agree?

   CURB Well, I don't think so. You know, it was very interesting. When I was
lieutenant governor, Jerry Brown was governor and you might recall that he spent
just about a year of my term out of the state. And I served as acting governor.
In fact, the California Supreme Court ruled that I was the acting governor and
Gray Davis was the chief of staff for Jerry Brown at the time. And I remember
looking at Gray Davis and, you know, Gray is the consummate political operative.
He is a genius at getting elected. He has been elected to the assembly, to the
state controller, lieutenant governor, governor. But I think you need a
businessperson when you look at the dot-com turn down, you look at the budget
crisis going on, the energy crisis. I think you need a really strong
businessperson running the state, a person who's used to turning negatives into
positives, which is what happens in business.

   JARRETT Mike, the real problem there is the gridlock on the budget and it is
always, inevitably, caused by the way the constitution is set up, you have to
have a two-thirds majority approval of both houses in order to get a budget. A
Republican, arguably, might not do any better than Gray Davis.

   CURB Well, you know, you never know. It's all compromise. But I've always
believed that -- particularly in the state of California -- well, let's just
look at the history. When we had a Republican governor and a Democratic
legislature, whether it was Wilson, Deukmejian or Reagan, when we had a
Republican governor and a Democratic legislature, we were always able to come to
some kind of a compromise. I participated in compromised negotiations when I was
acting governor, and that was when Willie Brown was there. And there is a way to
negotiate. It's no different than what you do in business every day.

   JARRETT And, in fact, you said business twice now. Demand somebody with
business experience and you're smiling because you know where I'm going here.
Richard Riordan, former mayor of Los Angeles is probably going to toss his hat
in the ring. He is the guy for you, right?

   CURB Well, I like Riordan very, very much. And I like Arnold Schwarzenegger
very much. I mean, I know both of them. I also know Tom McClintock quite well.
He was the assemblyman in my district where I actually live. There are
outstanding people available to run for this office. Now Arnold has not made a
final decision. I understand he is not making the decision until Friday. Is that
correct?

   JARRETT Well, a source close to him told us here at Fox that he is not going
to run.

   CURB Well, obviously Dick Riordan did an outstanding job in LA. Tom
McClintock did an outstanding job.

   JARRETT I'm afraid we're out of time, but thanks very much.

   CURB Thank you.

   JARRETT Take care.

   CURB Thank you very much.

   JARRETT Well, you can bet on just about anything -- sports, hog prices, box
office figures and now canceled Pentagon plan would have allowed trading on
terror. That's right. An Internet-based futures market would have let people bet
on things like, well, future terrorist attacks, assassination attempts. The idea
was to help the Pentagon predict future events.

   Joining me now from Washington, D.C. is Robin Hanson, assistant economics
professor at George Mason University. The big question -- could a betting market
predict terrorist attacks? Mr. Hanson, what's your answer?

   ROBIN HANSON, ASST. ECON. PROF, GEORGE MASON UNIVERSITY The betting market
is unlikely to predict particular attacks on particular days, but it might
predict general tendencies. It might predict that certain groups of people are
more unhappy and more likely to do things. The markets we were trying to develop
weren't intended to predict particular attacks or particular events, they were
intended to predict overall trends of events.

   JARRETT Well, explain how this works because you and some other folks came
up with the idea.

   HANSON The idea would be that there would be a Web site you go to and there
would be a map of the Middle East and you could pick a country in a particular
quarter of the future and say Saudi Arabia in the fourth quarter 2004, and you
could say what's the chance of a lot of civil unrest in Saudi Arabia then. And
it might tell you those chances are 3.5 percent, and you could say do I think
that's too high or too low. And if you thought it was too low, you could raise
the probability, but you have to make a bet to do so. You would have to put some
money on the line, and you could change the probability there, and then someone
else could come along and move it back down again.

   JARRETT And the Pentagon was interested in the data that would be
accumulated because, what, they thought it would help them determine future
terror attacks and things like that?

   HANSON Well, the first priority here, this was a research project. This was
an attempt to take a new technology and explore it and to see what it could do.
So it wasn't supposed to be a full-fledged answer to every question in
intelligence. It was an attempt to sort of explore this idea and see what we
could do with it.

   JARRETT But the answer is yes, the Pentagon wanted the data because they
want to add it to their collective wisdom about when a terrorist attack is going
to take place, right?

   HANSON We want to know if we move our troops out of Saudi Arabia, does that
raise or lower the chance of a terrorist attack in Israel or a terrorist attack
in the United States, does it raise or lower the chance of a revolution in Saudi
Arabia?

   JARRETT You think the collective consciousness is somehow smarter than any
single individual, is that right?

   HANSON Well, it almost is by definition, sure. Everybody together knows more
than any one of us.

   JARRETT What if the collective consciousness of simply guessing, which is
what most people do in the stock market and the futures and so forth.

   HANSON Well, there is a difference between the average or the median and the
best. So a market isn't of an opinion poll that sort of takes the average of
everything. It lets people self-select. It lets the few people who know the most
contribute the most and encourages the other people to stay away.

   JARRETT Wouldn't betting on these outcomes, some of which are violent acts,
you're talking about assassination, terrorist attacks. I mean, arguably,
conceivably, wouldn't that tempt some people to commit those acts just to get
the payoff?

   HANSON No more than, you know, going on a TV show like this and being
interviewed tempts people to do things like that. We're just talking about a few
tens or hundreds of dollars per person at most they could win.

   JARRETT All it takes is one person to commit an assassination. Look, there
has been a storm of controversy over this. Hillary Clinton called it a futures
market of death. Others on Capitol Hill said it was grotesque and unbelievably
stupid. Since you came up with it, I'll give you an opportunity to respond to
that criticism.

   HANSON Well, it is a creative idea. The whole point is that take something
on the face of it that doesn't look like it a lot of sense, and if you think
about it, maybe it makes more sense then people create a research project to
explore it. The point of intelligence is to pay people to tell you things about
bad things that might happen. That's what intelligence is. There is no way
around it. If you're going to have another way of doing intelligence, you're
still going to be going that. The market way of doing that still does the same
thing.

   JARRETT Yes, and the market way it is a legitimate theory, according to you,
the efficient market hypothesis it is called. Does it work anywhere?

   HANSON It worked in all the cases we've seen in the following sense.

   JARRETT Where?

   HANSON When people put markets head to head with other real institutions,
real market to real institutions, not theory, the markets have come out ahead.
So for example, in the Iowa political markets, the markets have done better
three quarters of the time than national opinion polls at the same time about
who's going to win the presidential election.

   JARRETT Well, you stirred up a world of controversy and criticism, Robin
Hanson. Thanks for coming aboard to talk with us about it.

   HANSON You are most welcome.

   JARRETT Appreciate it.

   Coming up on THE BIG STORY, the hunt for Usama bin Laden. Where does it stand
right this minute? And why has it been so difficult to track down public enemy
number one?

   Plus, the recording industry pumps up the pressure, dragging into court
ordinary folks who illegally download music off the Internet. Are you next?