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Is The "Surge" Working?
A "working paper" by MIT Department of Econ's Michael Greenstone. The whole thing's available for $5 in PDF here, but here's the abstract:

There is a paucity of facts about the effects of the recent military Surge on conditions in Iraq and whether it is paving the way for a stable Iraq. Selective, anecdotal and incomplete analyses abound. Policy makers and defense planners must decide which measures of success or failure are most important, but until now few, if any, systematic analyses were available on which to base those decisions. This paper applies modern statistical techniques to a new data file derived from more than a dozen of the most reliable and widely-cited sources to assess the Surge's impact on three key dimensions: the functioning of the Iraqi state (including civilian casualties); military casualties; and financial markets' assessment of Iraq's future. The new and unusually rigorous findings presented here should help inform current evaluations of the Surge and provide a basis for better decision making about future strategy.

The analysis reveals mixed evidence on the Surge's effect on key trends in Iraq. The security situation has improved insofar as civilian fatalities have declined without any concurrent increase in casualties among coalition and Iraqi troops. However, other areas, such as oil production and the number of trained Iraqi Security Forces have shown no improvement or declined. Evaluating such conflicting indicators is challenging.

There is, however, another way to assess the Surge. This paper shows how data from world financial markets can be used to shed light on the central question of whether the Surge has increased or diminished the prospect of today's Iraq surviving into the future. In particular, I examine the price of Iraqi state bonds, which the Iraqi government is currently servicing, on world financial markets. After the Surge, there is a sharp decline in the price of those bonds, relative to alternative bonds. The decline signaled a 40% increase in the market's expectation that Iraq will default. This finding suggests that to date the Surge is failing to pave the way toward a stable Iraq and may in fact be undermining it.

Posted by aalkon at October 11, 2007 7:52 AM


Our military have been doing their jobs. The Iraqi politicians have utterly failed to do theirs. Until the Iraqis start getting some credible leaders who can get stuff done (other than, you know, blowing people up), this is a fool's errand.

Posted by: justin case at October 11, 2007 8:29 AM

> to date the Surge is failing
> to pave the way toward a
> stable Iraq

Hearing the word "stable" used with with respect to he Middle East is like hearing a woman under thirty use the word "appropriate". It gives the feeling that a whole bunch of stuff is being swept under the carpet by someone who wants to get their needs met and to hell with the rest.

As we chart the way out of this, we shouldn't let soothing fools in rose-colored glasses convince us to do things the way we did in some fondly-remembered but wretched antebellum (manipulating distant governments in subterfuge, hiring local crime families to dominate them, etc.) That would be like buying slaves after the siege of Atlanta.

Posted by: Crid at October 11, 2007 8:59 AM

It's an interesting theory, but it suffers from the same "efficient market", "market as oracle", "a billion monkeys can see into the future and price the market accordingly" problems that so many financial papers suffer from.

One person cannot see into the future.
6 Billion people still cannot see into the future.

Stock prices, theoretically, are the net present value of the future dividends of the asset.

Bond prices, theoretically, are the market estimate of the cost of a future dividend given the risk inherent in that dividend.

In reality, people can't see into the future. If you have a nice stable boring company like Home Depot, you may be able to project some of this stuff out for a year or two.

Bond prices in Iraq may reflect how the surge is being perceived, but they do not reflect the progress of the surge. They also, by nature, consider only the economic aspects of the surge. A surge that stuck everyone under a stable vicious dictator would probably result in higher bond prices than a surge that creates a less stable democracy in which all sorts of (even peaceful) political factors can affect the risk of a bond being serviced.

I think this sort of analysis is right up there with dream analysis.

Posted by: jerry at October 11, 2007 9:54 AM

They also, by nature, consider only the economic aspects of the surge.

Don't your next two sentences put the lie to this? Economics and politics are inextricably tied together.

Posted by: justin case at October 11, 2007 10:13 AM

Well, the southern (shiite) third has been ceded to warlords, the northern (kurdish) third is basically independent, and Baghdad and the middle are kind of hanging on, so what's left?? It appears that the Bushists have to aid the sunnis in order to save the country??
Is this correct?

Posted by: The Mad Hungarian at October 11, 2007 12:36 PM

Economics and politics are inextricably tied together.

But not necessarily in ways that imply the surge is working, or in ways that argue for a long term success.

As I suggested, a surge that resulted in a stable state under a vicious dictator would probably result in higher bond prices now than a surge with a messy democracy or a surge with a state that say, implemented a carbon tax.

I am not sure that valuing the dictator more highly than the messy economy really indicates the surge is working.

Posted by: jerry at October 12, 2007 12:14 AM

It seems likely that some of the discounting may be do to increased prospect of war with Iran.

Posted by: Mike Stajduhar at October 12, 2007 10:41 PM

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