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AEI-Brookings Joint Center Policy Matters 03-22 Innovation is supposed to be a cornerstone of the fight against terrorism. Homeland Security Secretary Tom Ridge made “encouraging new projects and innovations from entrepreneurs” one of his department’s top priorities. Likewise, Senator Ron Wyden called for “a technology roadmap that can strengthen our capacity to fight terrorism” because, he said, “a new generation of technologies and technology experts must be cultivated to meet future threats.” So you’d think that Congress would be thrilled with new ideas for assessing threats and improving ways of telling the public how likely those threats are. Well, think again. It turns out that Senators Wyden, Dorgan, and other members of Congress seem to have changed their minds, crushing an innovative idea for pulling together information on terrorism. And it wasn’t enough simply to reject the idea. They also want to smoke the thinker out of his tank: Senator Daschle says on his website that Americans have a right to know, “most importantly, who thought this was a good idea in the first place." The offending idea was the Pentagon’s “Policy Analysis Market,” which would have allowed people to buy and sell contracts on possible future terrorist events. The idea involved harnessing the power of markets to assemble countless pieces of information into probabilities of particular terrorist events. It’s a great idea in theory. Markets, when functioning properly, are an excellent way to aggregate large amounts of information. And they can work extremely well. The Iowa Electronic Markets, for example, allow people to buy and sell futures in elections, and tend to be better predictors of election results than multimillion-dollar polls or “expert” talking heads. The terror market might provide much better information about the probability of terrorist events than our current—and some would say useless—five-color threat indicator. For example, maybe a terror market could tell us how the likelihood of terrorist threats changes over time, while nobody will ever really know the difference between “yellow” and “orange” threats. On the other hand, there are also good reasons to think that a terror futures market might not work. Markets function when information flows freely. The nature of the war on terrorism means that information is not easily available, much of it is secret, and some people have the potential to affect—and thus profit from—the outcomes. And it’s hard to imagine the Securities and Exchange Commission having any luck prosecuting Osama bin Laden for insider terror trading. The bottom line is that a market on terror futures is a clever idea that may or may not work. But if Congress wants innovation in the war on terrorism, then it was a big mistake to lambaste the idea and demand that heads roll for having even conceived of it. As many politicians and experts have noted, our biggest problems in evaluating terror threats involve handling information: how to find it in a sea of distracting noise and force competing intelligence agencies to share it, for example. Solving the information problem is of paramount importance, and there is no silver bullet. Senator Wyden and others were right to call on Americans to think outside the box and apply their spirit of entrepreneurship and innovation to meet the terrorists’ challenge. Their call is meaningless, though, unless Congress rewards creative thinking—or at least doesn’t punish it. Congress’s emotional rejection of the terror market and the ensuing witch-hunt for its instigator could have a chilling effect on other innovative efforts to deal with terrorism. The futures market may be gone, but the terrorists’ stock may have gone up just a little bit. Scott Wallsten is a resident scholar at the American Enterprise Institute and a fellow at the AEI-Brookings Joint Center. Troy Kravitz contributed to this piece. |