Prediction Markets Can Tell the Future. Why Is the US So Afraid of Them?
17th October 2024
Americans have been wagering on presidential elections since George Washington and doing so in organised markets since at least Abraham Lincoln. More than a century ago, in the hotels and billiard halls of old New York and on the streets outside its stock exchanges, citizens swarmed to place bets on their next political leaders. Glorified bookies offered prices shifting with demand and kept healthy cuts for themselves.
In an era before scientific polling, these markets served a unique purpose — forecasting. Major newspapers would report their prices daily during the campaigns, as a barometer of the electorate. Modern scholarship finds that these early markets were remarkably accurate, with more predictive power than any other readily available source.
Prediction markets show that markets work. As Hayek loved to show, markets encapsulate everything that there is to be known about a comparative relationship, expressed as a price. This is a fundamental building block of economics, one of the first thing that students of economics are taught (however much their socialist professors later walk it back with handwaving about ‘market failures’).
But economics is always downstream from politics. No society has ever dared to allow fully free markets to operate, because the result would always put some politician’s panties in a wad (along with those of his constituency). So they have to Make Shit Up about how markets can be manipulated, how markets are inherently evil, etc. etc., which is bullshit–markets are neither good nor evil, any more than gravity is good or evil. Markets exist because they are the result of humans trading, which humans will find a way to do no matter what devices their ruling class use to eradicate them. (The term ‘black market’ is just a recognition of this fact, a smear that the ruling class uses to cast shade on a normal human activity.)