Today’s NYT has an editorial by Todd G. Buchholz, a former economic advisor to the White House. He has the first well-reasoned critique of PAM and the “terrorist futures” market we’ve read thus far. Unlike the other analysis in these past two days, this is grounded in some solid thinking.
In short: the market is a fine idea, but won’t work because it must be “deep and liquid,” meaning that there must be a high transaction volume and many participants. There are also problems with the frequency of terrorist attacks: they’re so rare, that the market would have difficulty speculating on them. There are also unpleasant side-effects: if the payouts are too large, there’s incentive to fix the market. In his words, “market manipulation can show up not as a forged buy order but as a bullet.”
He also asserts that the market is, in fact, unnecessary. The existing financial markets already incorporate PAM-like analysis: South African instability, for instance, is reflected in the trading price of the rand. It seems that a more sophisticated analysis of the markets already in place would yield similar results, without the attendant problems.
His final point is the most important: that DARPA, which collaborated with the Economist Intelligence Unit on PAM, is doing its job. It was chartered to come up with groundbreaking ideas exactly like these. In the past, DARPA has given us revolutionary technologies — not the least of which is the Internet. We should be encouraging this, and it’s important that yesterday’s Congressional rebuke doesn’t stifle its initiative.
a technology job is no excuse 