Tag Archives: surge Iraq economics bonds many eyes all bugs are shallow

Internet as Analysis Supplier: Is the Surge Working?

michael_greenstone.jpg Steven Levitt points out there are other ways to measure the effects of a military action than listening to politicians or generals, and the Internet can promote the production of such measures, and the analysis of them by multiple parties. On several measures, M.I.T. professor Michael Greenstone finds results of the U.S. “surge” in Iraq to be mixed. Then he brings in another measure:
The most interesting part of Greenstone’s paper is his analysis of the pricing of Iraqi government debt. The Iraq government has issued bonds in the past. These entitle the owner of the bond to a stream of payments over a set period of time, but only if the government does not default on the loan. If Iraq completely implodes, it is highly unlikely that these bonds will be paid off. How much someone would pay for the rights to that stream of payments depends on their estimate of the probability that Iraq will implode.

The bond data, unlike the other sources he examines, tell a clear story: the financial markets say the surge is not working. Since the surge started, the market’s estimate of the likelihood of default by the Iraqi government has increased by 40 percent.

Is the Surge Working? Ask the Data, Not the Politicians, By Steven D. Levitt, Freakonomics, September 15, 2007, 11:55 am

This kind of analysis seldom gets written for traditional channels because (2) there’s no academic incentive for it and (3) the only money in it is usually from special interests. Here’s the main point:
1. This paper shows how good economic analysis can contribute in a fundamental way to public policy. Anyone who reads Greenstone’s article will recognize that it is careful and thorough. It is even-handed and apolitical. It combines state-of-the-art data analysis techniques with economic logic (e.g., using market prices to draw conclusions about how things are going).

4. The internet can potentially solve both problems (2) and (3) above, leading to an increased supply of good, timely analysis. If people like Greenstone can immediately get their findings into the public debate through the internet, it gives a real purpose (not just an academic one) to doing the work. In addition, there are now online peer-reviewed academic journals that have greatly sped the time from submission to publication, potentially increasing the academic payoff to someone like Greenstone. With many respected economists now blogging, there is also a vehicle for these folks to weigh in on the quality of policy-related economic writings — like I am doing in this blog post.

If the Internet helps focus many eyes on bugs and make them shallow, why can’t it do the same with political and military actions?

Right now it can. Without net neutrality it wouldn’t be able to.