Author Archive

New Technology in Europe

Tuesday, May 22nd, 2012

Last week the New York Times ran an article, “Building the Next Facebook a Tough Task in Europe“, by Eric Pfanner, discussing the lack of major high tech innovation in Europe. Eric Pfanner discusses the importance of such investment, and then speculates on the reason for the lack of such innovation. The ultimate conclusion is that there is a lack of venture capital in Europe for various cultural and historical reasons. This explanation of course makes no sense. Capital is geographically mobile and if European tech start ups were a profitable investment that Europeans were afraid to bankroll, American investors would be on the next plane.

Here is a better explanation. In the name of “privacy,” the EU greatly restricts the use of consumer online information. Josh Lerner has a recent paper, “The Impact of Privacy Policy Changes on Venture Capital Investment in Online Advertising Companies” (based in part on the work of Avi Goldfarb and Catherine E. Tucker, “Privacy Regulation and Online Advertising“) finding that this restriction on the use of information is a large part of the explanation for the lack of tech investment in Europe. Tom Lenard and I have written extensively about the costs of privacy regulation (for example, here) and this is just another example of these costs, although the costs are much greater in Europe than they are here (so far.)

Privacy in Europe

Friday, January 27th, 2012

The EU is apparently thinking of adopting common and highly restrictive privacy standards which would make use of information by firms much more difficult and would require, for example, that data be retained only as long as necessary. This is touted as pro-consumer legislation. However, the effects would be profoundly anti-consumer. For one thing, ads would be much less targeted, and so consumers would get less valuable ads and would not learn as much about valuable prodcts and services aimed at their interests. For another effect, fraud and identity theft would become more common as sellers could not use stored information to verify identity. Finally, costs of doing buisness would increase, and so we would expect to see fewer innovations aimed at the European market, and some sellers might avoid that market entirely.

(Cross-posted from the Truth on the Market blog.)

Carrier IQ: Another Silly Privacy Panic

Friday, December 2nd, 2011

By now everyone is probably aware of the “tracking” of certain cellphones (Sprint, iPhone, T-Mobile, AT&T perhaps others) by a company called Carrier IQ.  There are lots of discussions available; a good summary is on one of my favorite websites, Lifehacker;  also here from CNET. Apparently the program gathers lots of anonymous data mainly for the purpose of helping carriers improve their service. Nonetheless, there are lawsuits and calls for the FTC to investigate.

Aside from the fact that the data is used only to improve service, it is also useful to ask just what people are afraid of.  Clearly the phone companies already have access to SMS messages if they want it since these go through the phone system anyway.  Moreover, of course, no person would see the data even if it were somehow collected.  The fear is perhaps that “… marketers can use that data to sell you more stuff or send targeted ads…” (from the Lifehacker site) but even if so, so what?  If apps are using data to try to sell you stuff that they think that you want, what is the harm? If you do want it, then the app has done you a service.  If you don’t want it, then you don’t buy it.  Ads tailored to your behavior are likely to be more useful than ads randomly assigned.

The Lifehacker story does use phrases like “freak people out” and “scary” and “creepy.”  But except for the possibility of being sold stuff, the story never explains what is harmful about the behavior.  As I have said before, I think the basic problem is that people cannot understand the notion that something is known but no person knows it.  If some server somewhere knows where your phone has been, so what?

The end result of this episode will probably be somewhat worse phone service.

(Cross posted from the Truth on the Market blog)

Privacy Again

Thursday, November 17th, 2011

The Wall Street Journal had a long article-debate on privacy earlier this week.  The strongest pro-privacy is Christopher Soghoian of the Open Society Institute.  He confuses commercial privacy with government privacy:

“The dirty secret of the Web is that the “free” content and services that consumers enjoy come with a hidden price: their own private data. Many of the major online advertising companies are not interested in the data that we knowingly and willingly share. Instead, these parasitic firms covertly track our web-browsing activities, search behavior and geolocation information. Once collected, this mountain of data is analyzed to build digital dossiers on millions of consumers, in some cases identifying us by name, gender, age as well as the medical conditions and political issues we have researched online.”

When asked “Why is that a problem” he replies

“Many of the dangers posed by digital dossiers do not occur regularly, but are incredibly destructive to people’s lives when they do. An unlucky few will be stalked, fired, surveilled, arrested, deported or even tortured, all as a result of the data kept about them by companies and governments. Much more common are the harms of identity theft or public embarrassment. Even when companies follow best practices—and few do—it is impossible to be completely secure.”

Note that “parasitic firms” are collecting the data which is then used for arrest, deportation, and torture.  A bit of a disconnect. Identity theft is a problem, but the risk is decreasing and the costs are almost always low.  Moreover, identity thieves are crooks, not firms.

What is particularly interesting about the article is the survey data reported.  It demonstrates peoples’ confusion about the issues.  92% of the adults surveyed  “Think that there should be a law that requires websites and advertising companies to delete all stored information about an individual” but between 32% and 47% would like websites to provide information of some sort (ads: 32%, discounts: 47%, or news: 40%) “tailored to their interests.”  But of course these numbers are totally inconsistent.  If websites cannot keep any information about an individual, then they cannot provide tailored information since there will be nothing on which to base the tailoring.  The relevant questions are tradeoff questions, but the reported survey does not address these.

Cross-posted from the Truth on the Market blog

The Case of Newspapers

Friday, June 4th, 2010

The Office of Policy Planning at the FTC has just issued the “Federal Trade Commission Staff Discussion Draft: Potential Policy Recommendations to Support the Reinvention of Journalism.”

This is a very strange document. It is written by “FTC staff in the Office of Policy Planning” but we cannot tell who actually wrote the draft. Moreover, no reason is given for writing the document. It is not a research paper (of the sort written in the Bureau of Economics) and there is no indication that it has been written in response to a Congressional inquiry. The missions of the FTC are antitrust and consumer protection, and this draft has little to do with either of these areas of responsibility.

Basically, this report is an exercise in industrial policy.

Is There a Problem?

The report tells us (as is obvious) that traditional print media are suffering. It also claims, with little rationale, that this is a public policy problem. The problem arises because “studies have shown that newspapers typically provide the largest quantity of original news to consumers…” But in a document with 180 footnotes, there is no source for the “studies” and so we cannot tell, for example, when these studies were completed. Moreover, just because newspapers have traditionally performed an important function does not mean that they are the only way this function could be done. A similar report in 1600 would have lamented the downfall of town criers.

Although the Draft on page 1 claims to be interested in policies which are “platform neutral,” on page 2 we learn that “most of the discussion in this document will use the perspective of newspapers…”  On page 5 we are told that because “newspapers have not found a new, sustainable business model…it is not too soon to start considering policies that might encourage innovations to help support journalism into the future.” In other words, the problem that this report is addressing is the problem of newspapers, not of news.

In a world where everyone with an internet connection has access to huge amounts of raw news and where anyone with a telephone camera who observes a newsworthy event can instantly post the video on numerous sources such as YouTube, it is difficult to understand why the FTC staff thinks we are in a situation where there is not enough news.

Moreover, the Tea Party movement has shown that people can learn about actionable news in time to actually take action. Newspapers were not the major source people used to learn about this movement, but the information spread quickly.

The True Purpose of the Report

In fact, this document is a defense of a traditional liberal ally, the American newspaper. Newspapers are in trouble but that does not mean that news is in trouble. One way to see the FTC perspective is to note that neither opinion blogs nor talk radio are mentioned in the report. These are two of the types of media that are replacing traditional news, but not supporting the liberal causes that the current FTC favors.

Economists are aware of the danger of industrial policy – of trying to pick winners and losers (or, in this case, of trying to turn a loser into a winner). Such policy is always wasteful because markets are better than governments at figuring out what investments are worthwhile. But when the industry involved is responsible for informing people about important issues of the day, and especially political issues, then the dangers of government involvement are especially large. This report tries to appear neutral, but it illustrates the dangers that we should be protected from by the First Amendment.

Fear of Drug Information

Wednesday, June 2nd, 2010

The Internet has opened huge number of possibilities for information and communication.  As the medium evolves, clever people are continually finding new applications.  But as soon as someone comes up with a new way of using the web, we can be sure that “privacy advocates” will quickly be along to warn against the “dangers” of this application.

One relatively new way in which people are using the Internet is that patients with particular medical conditions are able to find and communicate with each other.  A recent New York Times article has addressed this type of communication: “When Patients Meet Online, Are There Side Effects?”, Natasha Singer, May 28, 2010.

Some of the article is positive and discusses the benefits of such information sharing:  “Members can seek out patients of the same age, sex, and disease progression, whose profiles are displayed on the site, to see which drugs or doses worked for them. Drug makers can pinpoint subgroups — say, severely depressed middle-aged men — who reported the greatest improvement on a particular medication.”

But as is common with any article about information on the internet, the article quickly begins discussing what it views as negatives. Even the title references “Side Effects” and not benefits.  Moreover, many of these sites have various connections with drug makers.  To the Times, this raises some questions:

 “But pharmaceutical crowd-sourcing also raises important questions about the trade-off between the benefits of information sharing and the risk of patient exploitation.

 “Some people share their health information for the sake of the greater good. Yet they typically have no way of knowing whether their health profiles contribute directly to the development of more effective treatments — or are simply mined to create more effective drug marketing.”

These two paragraphs contain lots of hidden assumptions.  By patient “exploitation,” it appears that the author means selling patients drugs, but selling someone something that they want and that may provide benefits is not “exploitation.”   Moreover, marketing is contrasted with “development of more effective treatments,” implying that one is good but the other bad.  But creation of more effective drug marketing generally means finding out ways in which to better match patients and treatments – a socially useful activity.

Of course, one of usual suspects among privacy advocates is also quoted:  “’We are talking about a digital pharma stealth economy that is emerging,’ says Jeff Chester, the director of the Center for Digital Democracy, a nonprofit group that works to safeguard user privacy.”  The Times sees no need to quote anyone who takes a different view on information and privacy.  Apparently, one side is enough to represent.

The FDA  also appears to be concerned about this “digital pharma stealth economy” and has been looking into the drug advertising market.  According to the article, the FDA “is still developing a policy on drug marketing through social media.”  We can only hope that the FDA does not stifle this very useful set of tools because of the fears of the privacy advocates and others with similar beliefs.