Is the Surge Working?

The answer to that question heavily depends on the metric one is using. In one sense, Pres. Bush and his defenders are right: violence is down in Baghdad and Anbar, and there isn't any corresponding increase in other regions. In another, Pres. Bush's detractors are also correct: this decrease in violence has not led to social improvements (i.e. the power still isn't on; unemployment is still very high; the oil is still not being pumped), and the fact that the violence has decreased might be more correlation than causation anyway.

Michael Greenstone, an economist as MIT, has recently concluded a study on the matter. He acknowledges the security and military successes of the surge, but finds an interesting result:

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.

Financial markets represent the aggregated common wisdom of those who are willing to put their money where their mouth/brain is. Couple this with the fact that some foreign oil companies are making deals directly with the Kurdish regional government, rather than the national Iraqi government, and the consensus in the financial sector seems to be that the chance of the a collapse of the Iraqi government have gone up in the past 6-7 months. Obviously this process may have been underway well before the surge began. But it doesn't appear that the surge has been successful in obviating this risk.

Political commentators would be wise to take note; it's never a good idea to bet against the financial markets.

(ht: Freakonomics)