Attempts to measure the United States’ success in Iraq, and specifically the success of the troop surge that began this past summer, have been compromised either by a lack of data or a lack of objectivity, says MIT economist Michael Greenstone. He adds that measures such as the number of soldiers and civilians killed indicate that the security situation is getting better, but that oil production is still down.

“All these measures are helpful,” he says, “But the reason we did the surge is to produce a stable Iraq,” and that he had not seen anything approaching systematic information on how the surge in Iraq was proceeding, or to measure whether Iraq was stabilizing politically or economically.

While Greenstone is not a trader, he picked up on the idea that bonds and credit default swaps would be a good way to quantify the likelyhood of a stable and prosperous Iraq.

“The idea was really simple. After the surge, what happened to bond prices? And what happened to credit default swaps on those bonds?” he says.

His findings are striking.

“From the moment the surge began until sometime in the summer, the price of those bonds never increased and slightly decreased. And then in the summer, prices started to decline,” he says, adding that he did his best to separate the affects of the subprime lending crisis from the independent impact of the surge, and that even so, those markets are pricing in a 40% chance of default.

As I write this, our MBA president has yet to return calls requesting comment.

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