Tuesday, August 26, 2003
Fran,
Congratulations on a terrific post. As we've discussed, I'm in complete agreement with you on the causes of the current recession. Unfortunately, I think you might be a little off base on the prognosis and prescription for the economy. Now, I'm going to address these issues in an analytic framework. So, its important to realize that what I'm saying is in reference to the state of the macroeconomy, and is not a reflection of my degree of sympathy with any of the participants in the economy. Saying a quadrapalegic is unfit for manual labor isn't a judgement on the human worth of the quadrapalegic, but simply a description of the situation. Likewise, saying that a number of people are going to be burned alive in a given year (within a statistical likelihood) doesn't detract that one might feel profound sympathy with burn victims.
First of all, I have to say that I think you're a little too pessimistic about the near-term outlook for the economy. For instance, I think your allusion to the Great Depression is a little misleading (although I concede that I doubt that a direct comparison, as opposed to an explanation of panic, is what you were trying for). The Depression largely stemmed from a collapse in consumer spending. As you yourself point out, the consumer spending sector has remained relatively robust. The current problem, as you point out, is in capital investment, which has taken a dive. Whatsmore, unemployment is largely seen as a lagging rather than leading economic indicator, although thats small recompense to the unemployed. When you look at leading indicators, however, you get a different story. The Conference Board's Index of Leading Indicators rose .4% in July, the fourth consecutive increase in the index (Its up 2% since its low in March).
The financial markets also provide a fairly positive outlook for the forward economic climate. Both credit spreads and credit default swap rates have not only stabilized, but even trended downward over recent months. This suggests that investors, at least, feel confident that corporate credit quality is improving. Fortunately, it doesn't look like this improvement is coming from foregoing profit potential. Equity investors have bid up the Dow 24% the S&P 25% and the NASDAQ a stunning 49% from their lows in March. Finally, the (USD LIBOR) yield curve has steepened somewhat, suggesting that investors are assuming more robust economic conditions ahead (essentially, investors are assuming progressively larger increases in interest rates in the future than they were in March). This steepening has largely occurred on the middle and long end of the curve. In short, while economic theory has said for some time that conditions should improve, the economy is now largely providing signals that it is listening.
Now, you may be asking yourself, if things are improving so much, why does everything seem to be getting worse. Well, despite the fact that we talk about the national economy, there are distinct regional differences. Now, from my Fed days, I'm familiar with the Fed's breakdown of regions. The Third District, the Philadelphia region, has a particularly unfortunate behavior. It lags the economy in recoveries and leads it in recessions. That is, a downturn hits Philly before the rest of the country and Philly gets out of the downturn after things are improving everywhere else. The New York region would probably exhibit this quality even more, except that it has a few national-market industries (media, finance, theater, etc.). While the economy in NYC has been hard hit by the recession, a good bonus season could easily turn that around.
These regional differences, though, give rise to the first of my concerns give rise to the first of my concerns regarding your Keynesian stimulus package. Ideally, such a package would run counter to local economic conditions. That is, the regions of the country further behind on the recovery path would receive a larger share of the spending. But that seems a remarkably unlikely outcome, even if we ignore the movement of dollars outside the region of subsidy. A more likely scenario is that the regions with more dynamic (i.e. more upwardly responsive) economies would have the population growth and the unallocated resources to be able to successfully secure the lion's share of the stimulous. But, that's exactly the situation you don't want: certain areas of the country going great guns (and even overheating) while other regions remain in the dolldrums.
In addition to the geographic misallocation, we have to consider the potential for temporal misallocation. The money from a Keynesian stimulous package entered into today wouldn't hit the economy today (well....sorta...rational expectations, and all...), but rather six months from today. Now, if you're right and the economy stays sluggish in the meantime, great. You've just gotten a needed leg up. The problem, of course, is if you're wrong. In that case you introduce a stimulous into a system thats already moving at a steady clip. That's a recipe for overheating and Fed tightening to prevent inflation throwing you back into recession prematurely.
Finally, one needs to consider the possibility of sectoral misallocation. The major portion of your stimulous package goes to the consumer spending sector. But, as we've established, the consumer spending sector has remained robust. The weakness in our economy is in the capital investment sector. A surge in consumer spending might very well bid up prices in industries where there is already sufficient demand (again the overheating argument), while leaving the industries most severely effected by the downturn unhelped. Similarly, the second largest portion of your allocation goes into defense spending, a very specialized industry. To make a long story short, the skill set for an engineer, accountant, programmer, etc. in military projects isn't often a direct transfer from civilian uses. However, military spending has been pretty strong over the last couple of years (as it should be). This, again, leaves us the possibility of overheating in one sector, while leaving the main target sector unaffected.
Basically, I'm convinced that you may be jumping the gun in terms of a stimulous package. Now, I'm just as insecure as any of you about the state of the economy (working in the NY financial markets tends to do that to people). Moreover, I think things like developing advanced weapons or modernizing the federal governments computer systems might be worthwhile goals on their own. But, I'm less convinced now than I was six months ago that we are in a situation that merits the misallocation risks that such a stimulous package would entail. That said, there is a sector with pent-up investment demand that merely requires a regulatory and legal restructuring. I'd suggest that now might be the time for a comprehensive review of the legal, tax, and regulatory framework under which the electric power industry is operating. Lets let them upgrade the grid.
Congratulations on a terrific post. As we've discussed, I'm in complete agreement with you on the causes of the current recession. Unfortunately, I think you might be a little off base on the prognosis and prescription for the economy. Now, I'm going to address these issues in an analytic framework. So, its important to realize that what I'm saying is in reference to the state of the macroeconomy, and is not a reflection of my degree of sympathy with any of the participants in the economy. Saying a quadrapalegic is unfit for manual labor isn't a judgement on the human worth of the quadrapalegic, but simply a description of the situation. Likewise, saying that a number of people are going to be burned alive in a given year (within a statistical likelihood) doesn't detract that one might feel profound sympathy with burn victims.
First of all, I have to say that I think you're a little too pessimistic about the near-term outlook for the economy. For instance, I think your allusion to the Great Depression is a little misleading (although I concede that I doubt that a direct comparison, as opposed to an explanation of panic, is what you were trying for). The Depression largely stemmed from a collapse in consumer spending. As you yourself point out, the consumer spending sector has remained relatively robust. The current problem, as you point out, is in capital investment, which has taken a dive. Whatsmore, unemployment is largely seen as a lagging rather than leading economic indicator, although thats small recompense to the unemployed. When you look at leading indicators, however, you get a different story. The Conference Board's Index of Leading Indicators rose .4% in July, the fourth consecutive increase in the index (Its up 2% since its low in March).
The financial markets also provide a fairly positive outlook for the forward economic climate. Both credit spreads and credit default swap rates have not only stabilized, but even trended downward over recent months. This suggests that investors, at least, feel confident that corporate credit quality is improving. Fortunately, it doesn't look like this improvement is coming from foregoing profit potential. Equity investors have bid up the Dow 24% the S&P 25% and the NASDAQ a stunning 49% from their lows in March. Finally, the (USD LIBOR) yield curve has steepened somewhat, suggesting that investors are assuming more robust economic conditions ahead (essentially, investors are assuming progressively larger increases in interest rates in the future than they were in March). This steepening has largely occurred on the middle and long end of the curve. In short, while economic theory has said for some time that conditions should improve, the economy is now largely providing signals that it is listening.
Now, you may be asking yourself, if things are improving so much, why does everything seem to be getting worse. Well, despite the fact that we talk about the national economy, there are distinct regional differences. Now, from my Fed days, I'm familiar with the Fed's breakdown of regions. The Third District, the Philadelphia region, has a particularly unfortunate behavior. It lags the economy in recoveries and leads it in recessions. That is, a downturn hits Philly before the rest of the country and Philly gets out of the downturn after things are improving everywhere else. The New York region would probably exhibit this quality even more, except that it has a few national-market industries (media, finance, theater, etc.). While the economy in NYC has been hard hit by the recession, a good bonus season could easily turn that around.
These regional differences, though, give rise to the first of my concerns give rise to the first of my concerns regarding your Keynesian stimulus package. Ideally, such a package would run counter to local economic conditions. That is, the regions of the country further behind on the recovery path would receive a larger share of the spending. But that seems a remarkably unlikely outcome, even if we ignore the movement of dollars outside the region of subsidy. A more likely scenario is that the regions with more dynamic (i.e. more upwardly responsive) economies would have the population growth and the unallocated resources to be able to successfully secure the lion's share of the stimulous. But, that's exactly the situation you don't want: certain areas of the country going great guns (and even overheating) while other regions remain in the dolldrums.
In addition to the geographic misallocation, we have to consider the potential for temporal misallocation. The money from a Keynesian stimulous package entered into today wouldn't hit the economy today (well....sorta...rational expectations, and all...), but rather six months from today. Now, if you're right and the economy stays sluggish in the meantime, great. You've just gotten a needed leg up. The problem, of course, is if you're wrong. In that case you introduce a stimulous into a system thats already moving at a steady clip. That's a recipe for overheating and Fed tightening to prevent inflation throwing you back into recession prematurely.
Finally, one needs to consider the possibility of sectoral misallocation. The major portion of your stimulous package goes to the consumer spending sector. But, as we've established, the consumer spending sector has remained robust. The weakness in our economy is in the capital investment sector. A surge in consumer spending might very well bid up prices in industries where there is already sufficient demand (again the overheating argument), while leaving the industries most severely effected by the downturn unhelped. Similarly, the second largest portion of your allocation goes into defense spending, a very specialized industry. To make a long story short, the skill set for an engineer, accountant, programmer, etc. in military projects isn't often a direct transfer from civilian uses. However, military spending has been pretty strong over the last couple of years (as it should be). This, again, leaves us the possibility of overheating in one sector, while leaving the main target sector unaffected.
Basically, I'm convinced that you may be jumping the gun in terms of a stimulous package. Now, I'm just as insecure as any of you about the state of the economy (working in the NY financial markets tends to do that to people). Moreover, I think things like developing advanced weapons or modernizing the federal governments computer systems might be worthwhile goals on their own. But, I'm less convinced now than I was six months ago that we are in a situation that merits the misallocation risks that such a stimulous package would entail. That said, there is a sector with pent-up investment demand that merely requires a regulatory and legal restructuring. I'd suggest that now might be the time for a comprehensive review of the legal, tax, and regulatory framework under which the electric power industry is operating. Lets let them upgrade the grid.
In case anyone is wondering, I'd conclude that its fair to say that Larry Summers is a good example of a liberal Aristotelian
Tuesday, August 19, 2003
Its my hell and I'll condemn if I want to, condemn if I want to...
Hipsters
Circle I Limbo
Joanne Livingston (and her friend....Jill...)
Circle II Whirling in a Dark & Stormy Wind
General asshats
Circle III Mud, Rain, Cold, Hail & Snow
The French
Circle IV Rolling Weights
The New York Times / Howard Raines
Circle V Stuck in Mud, Mangled
River Styx
Kim's Ex-Boyfriend
Circle VI Buried for Eternity
River Phlegyas
Micheal Moore
Circle VII Burning Sands
Noam Chomsky
Circle IIX Immersed in Excrement
Osama bin Laden
Circle IX Frozen in Ice
Sunday, August 17, 2003
Saturday, August 16, 2003
I’m sure by now you’ve all heard about the UC Berkeley study purporting to give a psychological profile of conservative thinking. I’ve given it some thought, and I think I know how to explain these blatherings. In modern American politics (I’ll say over the last twenty to thirty years), conservatives have tended to be Aristotelians, while liberals have tended to be Platonists. The two schools of thought have tremendously different ways of evaluating the validity of things. Aristotelians believe that ideas should be derived from observation of the external world and are properly evaluated by determining how closely an idea comports with observation of the world. To an Aristotelian, saying something is true means saying it comports with the facts. Platonists, on the other hand, believe that the world about us is merely a pale reflection of higher truths (Plato's Analogy of the Cave is essentially getting at this.). To a Platonist, judging ideas by means of external observation is largely a futile exercise. The information you get from the outside world isn't truth, but merely facts. The higher truths lie in the world of ideas and surpass facts, which are largely inadequate, contaminated examples of the truths in the world of ideas, and the only way to get at the higher truths is through intuitive knowledge and study of the ideas in as purely abstract as possible.
To a Platonist, an Aristotelian undoubtedly seems to be mentally unbalanced. After all, he's looking at shadows on the wall of the cave and calling those shadows truth. Surely, he reasons, the Aristotelian's refusal to look truth straight on must be from some moral or intellectual failing.
Consider, if you will, some of the authors' claims about conservative thinking:
*Dogmatism and intolerance of ambiguity;
To the Aristotelian, there ultimately is one ultimate source for judging the validity of a claim: demonstrable, verifiable, reality. If something is not true in fact, Aristotelians conclude that it’s false. This constancy of standard undoubtedly baffles (and even offends) Platonists. Truth, they’ll say lies in many different sources (after all, each person’s connection to the higher truth is unknown and perhaps unknowable). Surely, no one source has a monopoly on it. Various truth-seekers have arrived at many different conclusions. Consequently, viewing this one source, the outside world, as the basis for judgement undoubtedly seems to strike Platonists as dogmatic.
*Need for cognitive closure;
To the Aristotelian, evidence from the outside world provides the basis for judging claims and ideas. The ideas and claims themselves are largely man-made constructs to provide a framework to make use of this evidence from the outside world. That is to say, the ideas and claims themselves are not things per se, but structures for analyzing evidence. To the Platonist, the claims and ideas are the actual things. This difference forms the basis for the differences between how Aristotelians and Platonists deal with contradiction. It is precisely in the realm of ideas and claims that contradictions exist. Facts don’t contradict one another, but the interpretations do. To the Platonist, these interpretations are the reflection of the truth. Where there are contradictions, the contradictions lie in the truth itself, a complex and multi-faceted thing. To the Aristotelian, however, the contradiction lies only in the process by which the evidence is organized and interpreted; it is, in short, merely evidence of sloppy thinking. Since the facts themselves are not in contradiction, the contradiction can only lie in improperly reflecting this reality.
* Fear and aggression / Terror management
It’s here that, to some extent, I’ve got to delve a little into the politics of both sides. Ultimately, these criticisms stem from a belief that Aristotelians overestimate the level of threat from outside sources. To understand this perspective, one needs to consider that there are three possible results of threat analysis on both sides of the fence: overestimation, underestimation, and correct estimation. For either side, disagreements will not arise in the case of correct estimation. Both sides recognize the threat as it is. For Aristotelians, overestimation or underestimation also aren’t problems. The misinterpretations can, by and large, be corrected by the presentation of additional evidence. But, when we move to the realm of the Platonists, things get a little more complex. Truth, after all, isn’t a function of evidence. It exists independently of it. Since, the case of the accurate estimator isn’t a problem, we can safely move on to the case of the over and underestimators. Those who consistently overestimate the level of threat that they encounter (especially when both divorced from evidence) are quite fairly judged paranoids in our society. Consequently, their views are quite properly dismissed. But, this situation leaves, on the Platonist side, only the consistent underestimators. Now, bear in mind to underestimators, their view isn’t opinion or interpretation, but truth. If that’s the case, it’s easy to see where, from their perspective, even accurate estimators are, in fact, overestimators. Think about it, a RINO on the staff of Berkeley would probably consider himself a conservative; politics does tend to be one of those things that are relative.
I could try going into the point about uncertainty avoidance, but ultimately, I’ve come to understand that it is a term-of-art in sociology and anthropology. Consequently, I prefer to avoid making any judgements based on my understanding of the layman’s terminology.
All in all, though, I see a consistent pattern in the Berkeley study: left-wing Platonists evaluating differing viewpoints based on their own standards. For surely, their standards need no defending nor evidence. Their views are revealed truth coming from, well, the enlightened. That said, I’m not really a complete opponent of Platonic thinking. There are plenty of areas where the Platonic approach is not only valuable, but vital. Religion, philosophy, aesthetics, and morality are just a glimpse of the areas where the Aristotelian paradigm is of extremely limited use. But, as even Machiavelli recognized, politics is a field that passes in this world. As a result, the professors’ Platonic paradigm amounts to much the same as counting angels on the head of a pin.
To a Platonist, an Aristotelian undoubtedly seems to be mentally unbalanced. After all, he's looking at shadows on the wall of the cave and calling those shadows truth. Surely, he reasons, the Aristotelian's refusal to look truth straight on must be from some moral or intellectual failing.
Consider, if you will, some of the authors' claims about conservative thinking:
*Dogmatism and intolerance of ambiguity;
To the Aristotelian, there ultimately is one ultimate source for judging the validity of a claim: demonstrable, verifiable, reality. If something is not true in fact, Aristotelians conclude that it’s false. This constancy of standard undoubtedly baffles (and even offends) Platonists. Truth, they’ll say lies in many different sources (after all, each person’s connection to the higher truth is unknown and perhaps unknowable). Surely, no one source has a monopoly on it. Various truth-seekers have arrived at many different conclusions. Consequently, viewing this one source, the outside world, as the basis for judgement undoubtedly seems to strike Platonists as dogmatic.
*Need for cognitive closure;
To the Aristotelian, evidence from the outside world provides the basis for judging claims and ideas. The ideas and claims themselves are largely man-made constructs to provide a framework to make use of this evidence from the outside world. That is to say, the ideas and claims themselves are not things per se, but structures for analyzing evidence. To the Platonist, the claims and ideas are the actual things. This difference forms the basis for the differences between how Aristotelians and Platonists deal with contradiction. It is precisely in the realm of ideas and claims that contradictions exist. Facts don’t contradict one another, but the interpretations do. To the Platonist, these interpretations are the reflection of the truth. Where there are contradictions, the contradictions lie in the truth itself, a complex and multi-faceted thing. To the Aristotelian, however, the contradiction lies only in the process by which the evidence is organized and interpreted; it is, in short, merely evidence of sloppy thinking. Since the facts themselves are not in contradiction, the contradiction can only lie in improperly reflecting this reality.
* Fear and aggression / Terror management
It’s here that, to some extent, I’ve got to delve a little into the politics of both sides. Ultimately, these criticisms stem from a belief that Aristotelians overestimate the level of threat from outside sources. To understand this perspective, one needs to consider that there are three possible results of threat analysis on both sides of the fence: overestimation, underestimation, and correct estimation. For either side, disagreements will not arise in the case of correct estimation. Both sides recognize the threat as it is. For Aristotelians, overestimation or underestimation also aren’t problems. The misinterpretations can, by and large, be corrected by the presentation of additional evidence. But, when we move to the realm of the Platonists, things get a little more complex. Truth, after all, isn’t a function of evidence. It exists independently of it. Since, the case of the accurate estimator isn’t a problem, we can safely move on to the case of the over and underestimators. Those who consistently overestimate the level of threat that they encounter (especially when both divorced from evidence) are quite fairly judged paranoids in our society. Consequently, their views are quite properly dismissed. But, this situation leaves, on the Platonist side, only the consistent underestimators. Now, bear in mind to underestimators, their view isn’t opinion or interpretation, but truth. If that’s the case, it’s easy to see where, from their perspective, even accurate estimators are, in fact, overestimators. Think about it, a RINO on the staff of Berkeley would probably consider himself a conservative; politics does tend to be one of those things that are relative.
I could try going into the point about uncertainty avoidance, but ultimately, I’ve come to understand that it is a term-of-art in sociology and anthropology. Consequently, I prefer to avoid making any judgements based on my understanding of the layman’s terminology.
All in all, though, I see a consistent pattern in the Berkeley study: left-wing Platonists evaluating differing viewpoints based on their own standards. For surely, their standards need no defending nor evidence. Their views are revealed truth coming from, well, the enlightened. That said, I’m not really a complete opponent of Platonic thinking. There are plenty of areas where the Platonic approach is not only valuable, but vital. Religion, philosophy, aesthetics, and morality are just a glimpse of the areas where the Aristotelian paradigm is of extremely limited use. But, as even Machiavelli recognized, politics is a field that passes in this world. As a result, the professors’ Platonic paradigm amounts to much the same as counting angels on the head of a pin.
Thursday, August 14, 2003
Dave,
You make an interesting point regarding the "betting on assassinations" issue. Actually, most of the rumors I've been hearing are that the futures market program was the thing that did him in. Unfornately, both you and the people switched over to the anti-Poindexter camp over this matter (I do not by any stretch of the imagination approve of the Total Information Awareness program, and have doubts about him for that program alone.) are dead wrong on the issue, and frankly we're all at a little more risk of getting blown up or shot for your citicism's killing of the program. Thanks.
One of the major issues in the intelligence world is not the gathering of data but the distribution and collation of data to people who can draw conclusions about that data. In general, there isn't a trickle, but rather a torrent of relevant information to draw the conclusions necessary to counter the actions of those who would act against our country's interests. Most of that data isn't particularly relevant information, but is merely static or white noise. The intelligence community needs to have some method to sort out the wheat of information from the chafe of white noise. The reality is that they don't. Thats why the conspiracy-minded on the right and left have been able to say that Roosevelt knew beforehand about Pearl Harbor and Bush knew about 9/11 beforehand. After all, the little bits and pieces of data were available (albeit scattered around the government in both cases).
Financial markets have proven time and again to be not a great, but an amazing predictor of future events. The truth of the matter is that they consistently on isssue after issue after issue beat any single given expert. Thats because any given expert rarely has every single bit of information to make a decision and rarely has every single possible perspective on the evaluation of that information. Futures and forward market prices, by and large, do. Thats why the best predictor of future interest rates are the yield curve's implied forward rates and the futures markets' interest rate levels. Thats why private markets such as University of Iowa's Electronic Marketplace can routinely routinely best the results offered by the nation's top polling organizations and political scientists, or other online futures markets generally do a better job of calling things like who'll win the World Series, how well a Hollywood picture will fare or how many copies of an album will be sold than the top sports reporters, movie producers, or music critics.
Access to precisely this sort of data can do an incredible amount to resolve the filtering issue the intelligence community faces that I discussed earlier. It provides a signal that some set of data about the world provides is of greater urgency. That conversation that was recorded of the Saudi militant talking to his Egyptian friend about delivering a crate of pineapples might be a little more important and a little more worth following up on if the price of bombing futures has just risen 25% over the last two weeks.
Just as importantly, pricing data provides a valuable way for the intelligence community to allocate scarce resources. You can try saying that the intelligence community should always be ready for anything that might happen all you want. And, I'll respond that either you're too intelligent to make such a statement or you should drop the rhetoric. Focusing on everything means focusing on nothing. I find it somewhat telling that such claims are most often forthcoming from individuals who seem most interested in slashing intelligence spending and seemed most ready to attack the terrorism futures idea. The data provided by a futures market would make clear to intelligence analysts where they might want to pay a little more attention. For example, lets say you're a CIA counterterrorism planner. You have five guys working on figuring out where Palestinian terrorists might be plotting, and say two working on activity in Indonesia. Does this make sense if Hamas and Hizballah futures have been stable while Jemaah Islamiyah futures have been rising steadily, or are you going to think seriously about reallocating a few of your people?
But lets face it. The real reason this idea got attacked was precisely the thing you were relying on in your satire (and my most abject apologies if the comment was a throw-away line): it sounds icky. "Its betting on death". I'll ignore the fact that this country has a huge industry devoted in its entirety to precisely that - life insurance. The entire objection reminds me of the midieval prohibition of experimentation and dissection of corpses for research. Sure, you might be able to learn how to stop people from getting sick and dying an early death, but its akin to grave-robbing, its ghoulish, its ICKY!
Look, I had a big problem with Total Information Awareness: it bore a huge cost in terms of freedom and provided us little in the way of protection. But the terrorism futures market was different. It could have provided us with data to make us a lot safer and would have cost us damn near nothing. The only thing I see as sad about the entire proposal was that we were too damn backward to follow up on it.
You make an interesting point regarding the "betting on assassinations" issue. Actually, most of the rumors I've been hearing are that the futures market program was the thing that did him in. Unfornately, both you and the people switched over to the anti-Poindexter camp over this matter (I do not by any stretch of the imagination approve of the Total Information Awareness program, and have doubts about him for that program alone.) are dead wrong on the issue, and frankly we're all at a little more risk of getting blown up or shot for your citicism's killing of the program. Thanks.
One of the major issues in the intelligence world is not the gathering of data but the distribution and collation of data to people who can draw conclusions about that data. In general, there isn't a trickle, but rather a torrent of relevant information to draw the conclusions necessary to counter the actions of those who would act against our country's interests. Most of that data isn't particularly relevant information, but is merely static or white noise. The intelligence community needs to have some method to sort out the wheat of information from the chafe of white noise. The reality is that they don't. Thats why the conspiracy-minded on the right and left have been able to say that Roosevelt knew beforehand about Pearl Harbor and Bush knew about 9/11 beforehand. After all, the little bits and pieces of data were available (albeit scattered around the government in both cases).
Financial markets have proven time and again to be not a great, but an amazing predictor of future events. The truth of the matter is that they consistently on isssue after issue after issue beat any single given expert. Thats because any given expert rarely has every single bit of information to make a decision and rarely has every single possible perspective on the evaluation of that information. Futures and forward market prices, by and large, do. Thats why the best predictor of future interest rates are the yield curve's implied forward rates and the futures markets' interest rate levels. Thats why private markets such as University of Iowa's Electronic Marketplace can routinely routinely best the results offered by the nation's top polling organizations and political scientists, or other online futures markets generally do a better job of calling things like who'll win the World Series, how well a Hollywood picture will fare or how many copies of an album will be sold than the top sports reporters, movie producers, or music critics.
Access to precisely this sort of data can do an incredible amount to resolve the filtering issue the intelligence community faces that I discussed earlier. It provides a signal that some set of data about the world provides is of greater urgency. That conversation that was recorded of the Saudi militant talking to his Egyptian friend about delivering a crate of pineapples might be a little more important and a little more worth following up on if the price of bombing futures has just risen 25% over the last two weeks.
Just as importantly, pricing data provides a valuable way for the intelligence community to allocate scarce resources. You can try saying that the intelligence community should always be ready for anything that might happen all you want. And, I'll respond that either you're too intelligent to make such a statement or you should drop the rhetoric. Focusing on everything means focusing on nothing. I find it somewhat telling that such claims are most often forthcoming from individuals who seem most interested in slashing intelligence spending and seemed most ready to attack the terrorism futures idea. The data provided by a futures market would make clear to intelligence analysts where they might want to pay a little more attention. For example, lets say you're a CIA counterterrorism planner. You have five guys working on figuring out where Palestinian terrorists might be plotting, and say two working on activity in Indonesia. Does this make sense if Hamas and Hizballah futures have been stable while Jemaah Islamiyah futures have been rising steadily, or are you going to think seriously about reallocating a few of your people?
But lets face it. The real reason this idea got attacked was precisely the thing you were relying on in your satire (and my most abject apologies if the comment was a throw-away line): it sounds icky. "Its betting on death". I'll ignore the fact that this country has a huge industry devoted in its entirety to precisely that - life insurance. The entire objection reminds me of the midieval prohibition of experimentation and dissection of corpses for research. Sure, you might be able to learn how to stop people from getting sick and dying an early death, but its akin to grave-robbing, its ghoulish, its ICKY!
Look, I had a big problem with Total Information Awareness: it bore a huge cost in terms of freedom and provided us little in the way of protection. But the terrorism futures market was different. It could have provided us with data to make us a lot safer and would have cost us damn near nothing. The only thing I see as sad about the entire proposal was that we were too damn backward to follow up on it.
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