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Last Updated: Oct 16th, 2008 - 13:33:17 |
The United States has a gambling problem.
I'm not just talking about poker on television, Lotto, dog tracks, fantasy sports or the burgeoning world of online betting. There's also the stock and real estate markets, insurance policies, home mortgages, even getting a college degree is an expensive speculation: students bet that the jobs they will land after school will pay a return on their initial investment. Gambling has made this country the world's superpower. But it may also be its ultimate undoing - or perhaps its greatest tool against terrorism.
Aside from small, lively pockets of debauchery - Las Vegas, Atlantic City, the occasional Indian reservation - gambling in the United States is illegal. Fortunately, like so many other vices our society publicly condemns, gambling is also implicitly condoned, from drug stores on Main Street to hedge funds on Wall Street. Even President Bush, a born-again moralizer, has staked his entire presidency on the war in Iraq - an expensive bet, to say the least. Bush, in proposing his Social Security overhaul, even wanted to tie the retirement funds of millions of citizens to the volatility of the American economy.
Hail to the gambler-in-chief.
But perhaps the biggest, legalized gambling racket is the world of the futures markets. These markets essentially bet on the long-term wellbeing of other markets. For instance, instead of investing in bars of gold bullion, visionary brokers can wager whether the price of gold will go up or down. Other futures markets are more complicated: Will political upheaval in East Timor affect the price of hardwood in Brazil?
As predictive indicators, these markets have proved amazingly accurate: in nearly every market they perform in, they are able to better predict events than any expert or complicated computer algorithm.
Score one for the market-based economy.
In fact, these markets have proved so effective that in 2003 the U.S. Department of Defense began looking into whether it could use them to predict terrorist attacks and other acts of political instability. The DOD's program, called the Policy Analysis Market, would have created an online electronic futures market based on the volatility of international politics. Select investors would have been able to put money down on whether or not the House of Saud would fall, or whether Israel would be attacked with biological weapons. If events came true, investors got a return. The idea would have been that the collective intelligence of investors would be able to predict when and where the next terrorist attack would occur.
Unfortunately for the DOD, once unveiled the program quickly folded under the critical weight of public opinion, which tended to find the idea of betting on potentially tragic events more than a little disturbing.
"We just weren't aware of where the cut-off was between what was acceptable and what was beyond the pale," said Robin Hanson, one of the developers of the program. Apparently, for the American public, putting cash down on Barbaro to win the Derby is all right, but betting on whether the King of Jordan is going to get assassinated is downright immoral.
But really, when has the morally questionable ever stopped us before? Financial writer James Surowiecki argued at the time that the DOD's futures market was no different than other currently acceptable industries, such as insurance.
"The entire business of a life-insurance company is based on betting on when people are going to die," Surowiecki wrote in Sept. 2003 on Slate.com. "There may be something viscerally unappealing about this, but most of us understand that it's necessary. This is, in some sense, what markets do: harness amorality to improve the collective good. If the price of getting better intelligence is having our sensibilities bruised, we should be willing to pay it."
But, like guilty, broke gamblers slinking back to our hotel room below the breaking rays of dawn, we want to forget all about our addiction to risk. We want our gambling to be legal - or at least have the appearance of being legal - and we want to know that even if throwing the dice or betting on the Rockies is immoral enough to receive reproach from our grandmothers, it at least won't land us in Dante's ninth circle of hell.
Our gambler-in-chief might not be so lucky.
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