The Record (Bergen County, NJ)

August 3, 2003 Sunday All Editions

SECTION: OPINION; Pg. O02

LENGTH: 741 words

HEADLINE: Intriguing, but doomed, idea

SOURCE: North Jersey Media Group

BYLINE: JAMES AHEARN

BODY:
THE IDEA seemed so nutty, so off-the-wall, that people had trouble believing it
was for real, that the Pentagon was actually proposing to set up a terrorism
futures market in which traders could bet on the possibility that, for example,
the king of Jordan would be deposed, or Yasser Arafat would be assassinated.

But no. An in-house think tank in the Defense Department had devised just such a
scheme, and it was well beyond the blue-sky stage. It was to have gone into
operation last Friday. Almost at the last minute, a couple of senators got wind
of it, and before the day was over, the plan was as dead as the Hackensack
mastodon.

The sheer audacity of the scheme doomed it. What could possibly have possessed
the deep thinkers of the Defense Department? That was the universal reaction.
But it turns out that the basic idea was not all that crazy, according to
economists.

Markets can often predict events more accurately than, for example, expert
analysts or public-opinion polls. Today the nation's intelligence agencies are
flayed for failing to warn of the events of Sept. 11, 2001. A dozen years ago
the Central Intelligence Agency was denounced for missing the breakup of the
Soviet Union, the biggest international event in half a century.

The problem, apparently, is that the inherent caution of bureaucrats increases
with the sensitivity of the information they process. To announce in 1990 that
capitalism and democracy had won, that communism had lost, that the Cold War was
about to end, would have taken intestinal fortitude that most senior officials
lacked. They did not get where they were because of breakthrough insights,
forcefully advocated. They got there by not making waves. They busied themselves
writing bland consensus reports that failed to alert policymakers to impending
opportunities and hazards.

Suppose, though, that some system could be devised to permit knowledgeable
people to estimate trends in world affairs, and to be rewarded financially for
accurate predictions. Not, necessarily, predictions of sudden, explosive events
like assassinations. Rather, they might bet on an index of political and
economic stability in, say, Saudi Arabia or Syria. Or, for that matter - and
here things get truly dicey - the United States.

Suppose the manager of this market limited initial participation to 1,000
traders, as the Pentagon was contemplating. It would probably be an elite list.
George Soros, some white-shoe types from the Council on Foreign Relations,
prominent academics, the chief economists of Exxon-Mobil and Boeing, retired
intelligence chiefs - they would be likely candidates.

In addition to politico-economic index forecasting, they could take yes-or-no
fliers on questions like "Will Bashar al-Assad still be head of Syria on Dec.
31, 2005?" or "Will Prince Charles marry Camilla?" The results would be
fascinating, particularly if they were made public, as they inevitably would be,
even if the Pentagon tried to keep them secret.

Of more interest to the federal government than Charles and Camilla would be the
data the market would produce on the prospects for turmoil or calm in places
like the Mideast, Africa, and Asia. The difference between this data and formal
intelligence reports is that money would be talking, well-informed money, not
bureaucratic, cover-one's-backside caution.

It is for this precise reason that the concept was doomed. It was politically
untenable, and by week's end the chief proponent, Admiral John Poindexter, was
announcing his resignation. The government of the United States just cannot
operate a casino on the side, a casino in which bettors would assay the
likelihood that allies would be turned out of office and enemies would triumph.
Nor could the government contract with a private entity to do the job. The
connection with official Washington would remain.

Still, the concept was intriguing. Suppose, for instance, that a private firm,
perhaps one of the Atlantic City casinos, was hired to manage the market.
Suppose the firm could propose bets on domestic matters as well as foreign
affairs.

What an enticing prospect. "Will Hillary divorce Bill?" "Will the Republican
Party nominate Colin Powell in 2008?" With headlines on the results, readers
would turn to the foreign and national news before the sports pages. How 'bout
that!



James Ahearn is a contributing editor and former managing editor of The Record.