OnePeople

More PAM Defenders

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.

Terrorism Futures Market

Admiral Poindexter's Office of Information Awareness is at it again. Fresh from the sound drubbing they received in Congress for their Orwellian information-collection program, they have a new tool they think will help predict terrorist events. Rather than collecting more information, which the intelligence agencies are already drowning in, this program intends to improve the analysis of that information -- which is where the agencies have been failing.

The tool is the Policy Analysis Market. It's a joint venture between the venerable Economist Intelligence Unit and the Defense Advanced Research Projects Agency (DARPA). This should be familiar to anyone who's played the Hollywood Stock Exchange. It is a futures market for events in the Middle East. Traders place bets on when certain events occur, collecting money when they're right and losing money when they fail. The idea is that markets can be excellent indicators for future events -- each analyst's individual opinion is aggregated with the others, creating a consensus which is represented by the price.

The OIA wants to harness the analytic power of this market by opening a seperate market for terrorism futures, alongside the markets for stability and military posture in Syria, Iran, and elsewhere.

"Spending taxpayer dollars to create terrorism betting parlors is as wasteful as it is repugnant," say Senators Byron Dorgan (D-North Dakota) and Ron Wyden (D-Oregon). What's more, they feel that the market would actually influence the terrorists themselves -- if they know when the market thinks the next attack will be, they will obviously try to beat the oddsmakers.

They have a fair point, in that individual actors can more easily subvert the predictions of a theoretical market than any single person could influence the price of gold. Their revulsion at the premise of the market itself, though, is short-sighted. The market would provide a valuable service, in the form of relatively accurate predictions. They are not revolted by the other markets, like the date of the overthrow of the Jordanian monarchy, and it is foolish to say that a terrorism futures market is qualitatively different.

Other comments from the Senators belie the other forces at work: "They still didn’t get the message," Wyden said. "We want to put the final nail in this coffin." It seems that Poindexter's ham-fisted treatment of the controversial OIA surveillance program has permanently poisoned his relationship with Congress, and may have damaged the more useful and less controversial programs.

Update: Tue Jul 29 15:04:48 EDT 2003

After Senate Foreign Relations Committee Chairman read this piece heard of the program, he announced that the committee would "stop all engines on this matter today."

NYC Rent Deregulation

Wired New York, via No Data Source, has a running discussion on rent controls in New York. Briefly: New York's rent controls are distorting the market. Single widows hold on to three bedroom apartments, causing artificial shortages. Apartments allowed to float must subsidize the rent-controlled units, creating exhorbitant rents. The example of Cambridge, Massachusetts is held up as an example of the healing power of the marketplace. An MIT study cited in almost every piece concludes that after deregulation, housing investment increased 20%.

The Cambridge model is presumably the best-case scenario. New York would lift all controls at once, and allow the market to sort itself out. Investment in new housing would increase 20%, with a commensurate increase in available units, driving down the price of apartments. Retired widowers would no longer knock around in three bedroom apartments. Everyone has presumably won: the construction industry is happy with the new investment, landlords now have the flexibility to respond to market pressures, and tenants benefit from new, cheaper apartments.

Floating the 1 million rent-controlled units would certainly eliminate distortions in the market, but is this really what we want? Markets are excellent for delivering the best price-point to the widest possible audience, but terrible at instituting social policy.

There are other forces at work, however, which complicate the rosy scenario. At the heart of this deregulation-induced revitalization is the increase in supply. This means more people. Many more people, which is exactly what New York doesn't need.

This assumes, of course, that the 20% increase in housing investment is devoted to new construction, which is unlikely. It is far more likely, that new investment would be devoted to upgrades. New construction is messy and complicated. It is far easier and more lucurative to add hardwood floors, bay windows, and dishwashers to dilapidated apartments, and charge a higher rent for a tidy and newly unregulated profit. This does nothing to relieve the housing shortage, which is the presumed goal of deregulation.

Lo and behold, this is exactly what the MIT study claims will happen: deregulation creates better apartments, but does not increase their availability. Better, more expensive apartments come at the cost of driving out lower-income tenants, creating homogenously affluent neighborhoods.

Deregulation, it seems, works nicely for the construction industry and landlords, but works to the detriment of lower-income tenants. Under the current system, these tenants are subsidized by more affluent residents and an unpleasant market inefficiency. Faced with a choice between this, and a Manhattan reserved for old- and new-money New York Brahmins, we would gladly accept the former.

Manhattan Equinox

From Monday, 14 July to Wednesday 16 July, residents of Manhattan will get a special treat: a complete sunset. On a typical evening in Manhattan, someone facing west on the east-west streets will see the sun set behind a building. On these special days, and their companion days in December, the sun will instead rise and set directly over the street, visible until it disappears over the horizon. The effect is astounding: shadows stretch to infinity, and the sun seems to descend on the street traffic just blocks away.

This magic is possible because the famous grid pattern of Manhattan's streets is oriented 29.5 degrees off-center, keyed off of Amersterdam Avenue. On the special days, the sun also rises and sets on this same line, creating a perfect alignment.

You'll read about this effect in the local papers. Unfortunately, there's no name for this phenomena, making it awkward to talk about. If the Manhattan streets ran perfectly east-west, we could use the handy summer equinox or winter equinox. Alas, John Randel had different ideas. So, it needs a name. We suggest: the Manhattan Equinox. Lovely, yes?

Bush: "God told me to strike"

According to Abbas, immediately thereafter Bush said: "God told me to strike at al Qaida and I struck them, and then he instructed me to strike at Saddam, which I did, and now I am determined to solve the problem in the Middle East. If you help me I will act, and if not, the elections will come and I will have to focus on them."

-- Arnon Regular, Haaretz

Medical Malpractice Reform in the Senate

There's apparently a problem with medical malpractice insurance. It has become so expensive to get malpractice insurance that some doctors are being forced to move their practices elsewhere. The medical associations blame exhorbitant jury awards. The trial lawyer associations say the awards are fair -- after all, they're decided by a jury and judge.

Republicans are eager for tort reform in general, and medical malpractice reform is to be a big part of that. That might explain why Majority Leader Bill Frist is introducing a Republican plan into the Senate, even though he doesn't have the 60 votes he needs avoid a filibuster.

The Republicans want to put a $250,000 cap on punitive damages in malpractice cases. We've written about that before. Almost as soon as that solution was introduced, young Jésica Santilàn was given a heart and lung transplant with organs of the wrong blood type. You couldn't script it better. Opponents of the Republican proposal jumped all over it. The proposal was immediately retooled to allow exemptions for catastrophic injury.

Democrats, by contrast, are proposing a number of alternative measures. Some would like to give doctors tax credit for the insurance premiums, which is supposed to ease the burden. Others would like to walk back the antitrust exemptions that the malpractice insurance industry enjoys.

A few interesting things are happening here. First, the Republican standard-bearer on the issue is Frist, who's a doctor himself, and has campaigned on this issue before. Ever since he was brought out to replace the disgraced Senator Lott, the Republicans have used his background to lend credibility to their proposals What they don't like to talk about is Frist's close relationship to the malpractice insurance industry: Health Care Indemnity, the fifth largest insurer, is his family's business. The Democrats have asked him to recuse himself from the debate, but that's clearly not happening.

Second, there's been a curious ideological switch. The Republicans run against Big Government™ and for the healing power of the marketplace. On this issue, however, they're happy with a regulatory environment that is specifically anti-market: the malpractice insurance industry has a many concessions that allow them to flout antitrust laws. If this was another industry, wouldn't the solution be a deregulated, more competitive marketplace?

The Democrats love government oversight and a watchful hand on the economic tiller. Their proposal, however, is clearly pro-market; they want to eliminate the antitrust concessions. In the case of medical malpractice reform, each party's proposal is contrary to its ideology, but perfectly in keeping with its major donor's agenda.

The final curious twist is the decision to bring the proposal up for debate in the first place. The Republicans are gambling that a debate would give them the ammunition to campaign on the issue in 2004, even if they don't get a bill passed. The first danger is that Democrats could prevent a debate in the first place. The second danger is that the Democrats could manoeuver around them, and paint them with Big Business, or not protecting little J&eactue;sica Santilàn. The Chamber of Commerce, and others, are nervous about this, though the American Medical Association is still upbeat. After all, AMA members will benefit not matter which proposal passes.

Liberia's True History

Slate's Explainer has a great capsule history of Liberia. We've been reminded a little too often that it was founded by freed U.S. slaves. It's much more complicated than that.

Government Information Awareness

The Open Government project at MIT has an amazing resource: Government Information Awareness. It's a massively hyperlinked list of user-contributed information on government officials in every branch, every department. It includes major donors, who made their appointment, and just about everything else you'd need to know. jwz put it best: "It's IMDB for government!"