Column By Jerry Heaster, The Kansas City Star, Mo.

31 July 2003
The Kansas City Star (KRTBN)

Jul. 31--PENTAGON 'TERROR FUTURES MARKET' DOOMED TO FAIL: What can you say 
about the idea for the proposed "terror futures" market after you've said 
it's a monumentally stupid concept?

Well, you could say that even if it had redeeming economic value, which it 
doesn't, it still would be a highly flawed approach to creating a market.

Those with the temerity to defend the idea say markets are efficient 
processors of information. This means allowing futures traders to bet on the 
prospect of assassinations and other terrorist depredations could help 
signal the relative likelihood thereof.

To be sure, markets serve useful purposes, mostly in the service of 
encouraging the allocation of economic resources to their most productive 
uses. This is only in the long run, however, and efficiency depends on the 
markets being free and not manipulated.

In the short run, however, markets can be very misleading. In the late '90s, 
for instance, the stock market told us that investing in companies with 
"com" or "tech" in their names could guarantee untold riches even if these 
companies' losses often far outpaced their revenues.

Wrong.

As for futures markets, they have long served useful economic purposes, 
largely as a means to hedge financial risk. The markets that work best are 
large, liquid and difficult to manipulate. A "terror futures" market, by 
contrast, would be small and highly vulnerable to manipulation.

When traders, say, take a grain-futures position betting on a disappointing 
harvest, they can't conjure up a drought to win their bet. A terrorist with 
the substantial resources of an Osama bin Laden, however, could use 
sympathetic outside agents to make a futures bet on an assassination and 
then take action to assure his trade pays off.

A colleague says this Pentagon boondoggle reflects an unhealthy 
business-think culture that permeates the military, thanks to all the 
overweening corporate types who have been put in charge.

He's barking up the wrong tree for one simple reason: Business investment is 
subject to checks and balances. The first requisite is a reasonable 
expectation of a suitable return on the money invested. A concept as silly 
as a "terror futures" market would have a hard time passing the smell test 
in a responsibly run private-sector enterprise.

No, what this bit of entrepreneurial insanity really reflects is 
government-think, which holds that anything is worth a try as long as it's 
somebody else's -- read taxpayers' -- money at risk.

Give a bunch of pseudointellectual think-tankers several million in 
taxpayer-supplied play money and encourage them to brainstorm, and suddenly 
anything becomes possible. If something doesn't work, there's no personal 
financial loss and there's always the prospect of more money.

The "terror futures" project was nothing more than spendthrift government 
writ small. Washington mindlessly wastes more money in a day than even the 
Gateses, the Buffetts, et al, can make in a lifetime. Nevertheless, there 
are any number of Americans who never get it. Thus, they continue to insist 
that the answer to all our problems is to give even more taxpayers' money to 
those who treat it like so much sand to be pounded down a rathole.

Jerry Heaster's column appears Wednesday, Friday, Saturday and Sunday. To 
reach him, write the business desk at 1729 Grand Blvd., Kansas City Mo., 
64108; call (816) 234-4297, or send e-mail to jheaster@kcstar.com.