Outgoing Federal Communications Commission Chairman Kevin Martin is pushing for action in December on a plan to offer free, pornography-free wireless Internet service to all Americans, despite objections from the wireless industry and some consumer groups.

according to the Wall Street Journal.

I wonder who is going to decide what is pornography?

And does this mean drug abuse, domestic violence, gambling addiction, infidelity, negligent or reckless parenting, over-spending, etc. are okay?

Today, President Bush signed S. 602, “The Child Safe Viewing Act.”(CNet story here). The measure requires the Federal Communications Commission (FCC) to conduct an inquiry to examine the availability of, and methods of encouraging the use of, advanced blocking technologies that help parents protect their children from transmitted video and audio programming that the parents determine to be indecent or objectionable. The FCC has 270 days to complete the report.

I wrote about the measure more extensively when it passed the Senate back in October. As I noted in then, the measure was modified slightly when it passed through the Commerce Committee last year, but it still contains some provision that could be problematic. Specifically, as part of the FCC’s required study, the bill commands the FCC to “consider advanced blocking technologies” that:

• may be appropriate across a wide variety of distribution platforms, including wired, wireless, and Internet platforms;
• operate independently of ratings pre-assigned by the creator of such video or audio programming.

Those two provisions are cause for concern since they raise the specter of what I referred to as “convergence-era content regulation” in a PFF paper about the bill last year. It does so in two ways. First, it opens the door to FCC bureaucrats investigating media content controls for wireless and Internet platforms, something it has never been empowered to do before. Second, by specifying that these new advanced content blocking technologies should “operate independently of ratings pre-assigned by the creator,” the law seems to imply that existing voluntary rating and labeling systems cannot be trusted. That is a dangerous presumption that suggests the FCC might be able to come up with better media ratings on its own.

Of course, I could be overplaying these fears. The FCC might just stay true to its required role to act as an independent agency that can objectively evaluate the market and produce a balanced report on the issue. Then again, like so much else on this front, the entire endeavor could become a politicized mess and another exercise in media-bashing, complete with calls for greater regulation “for the children.”

Bottom line: We have to hope that the FCC doesn’t use this “study” as an excuse to undermine existing voluntary parental controls and private content rating efforts or, worse yet, embark on an effort to impose new speech controls or mandatory rating and labeling schemes on media content. If they follow that path, a serious First Amendment battle awaits.

P.S. If the FCC wants to save some time and some taxpayer dollars, I am happy to send over free copies of my big Parental Controls & Online Child Safety report to all FCC officials. Not to sound arrogant, but I believe my report already accomplishes most of what the bill requires. But I won’t hold my breath waiting for the FCC to call.

[Note: The Washington Watch page for S. 602 is here.]

Last month, I noted that UCLA Law School professor Doug Lichtman has a wonderful new monthly podcast called the “Intellectual Property Colloquium.” This month’s show features two giants in the field of tech policy — George Washington Law Professor Daniel Solove and Santa Clara Law Professor Eric Goldman –- discussing online privacy, defamation, and intermediary liability. More specifically, in separate conversations, Solove and Goldman both consider the scope of Section 230 of the Communications Decency Act of 1996, which shields Internet intermediaries from liability for the speech and expression of their users. Sec. 230 is the subject of hot debate these days and Solove and Goldman provide two very different perspectives about the law and its impact.

Goldman calls Sec. 230 “pure cyberspace exceptionalism” in the sense that it breaks from traditional tort norms governing intermediary liability. But he argues that this new online version of intermediary liability (which is extremely limited in scope) encourages more robust speech and expression than the older, offline version of liability (which was far more strict). I completely agree with Eric Goldman, but I respect the arguments that Lichtman and Solove raise about the privacy and defamation problems raised by the purist approach that Goldman and I favor.

Goldman also does a nice job dissecting the Roomates.com and Craigslist.com cases. And Lichtman brings up the JuicyCampus.com case during the conclusion. These are important cases for the future of Sec. 230 and online liability. Incidentally, there’s also an interesting conversation between Lichtman and Solove (around the 32:00 mark) about an issue that Alex Harris and Tim Lee have been raising here about the nature of online contracts and the perils of messy EULAs / Terms of Service (TOS).

These are two absolutely terrific conversations. Very in-depth and very highly recommended. Listen here.

[Note: I recently reviewed Daniel Solove's important new book, Understanding Privacy, here.]

Barack Obama will be nominating Eric Holder, former Clinton Administration deputy attorney general, to become the nation’s highest ranking law enforcement official.  This has folks like me worried, as Holder has expressed some unsavory views when it comes to keeping our technology free.

For example, Holder has expressed that law enforcement should have privileged access to encryption information, as Declan explains in his post at CNET’s News.com today.  Declan and I spoke yesterday evening about this and Declan was kind enough to quote me in his post:

“What he’s saying is that government needs to have some sort of privileged access for encrypted information,” said Cord Blomquist, a policy analyst and communications director at the nonpartisan Competitive Enterprise Institute. “Presumably the justification is that terrorists are communicating through encrypted messages and we want to listen in. Giving government privileged access to that is not only an attack on privacy, it’s an attack on free speech itself.”

As if this threat to freedom of expression wasn’t bad enough, Holder has also come out in favor of mandatory data retention for ISPs and other tech companies and he’s stated that he believes the Supreme Court should look favorably upon some government censorship of the Internet.

All of these positions might lead one to believe that Holder favors the 1984 approach to law enforcement.  Rather than following the due process called for by the Constitution and only pursuing those suspected of a crime, or obtaining a search warrant, or doing real law enforcement work, this school of thought favors labeling us all as suspects.

Yet, Holder has opposed the illegal NSA-sponsored wire-tapping program and the current implementation of the PATRIOT Act.  But much of this could be explained away as a matter of political expediency.  Both programs were creations of the Bush Administration, and Obama is about change, after all.

Law enforcement is important, in fact, it’s one of the primary reasons we have a government in the first place.  Unfortunately, Eric Holder favors several policies that would use technology to violate the rights of all citizens, rather than investigating and prosecuting only those who break the law.  This is the reason we have written Constitutions.

Of course, this new administration is also about hope, and we have some reason to hope that Holder will be better than Ashcroft or Gonzales at upholding the Constitution.  But, as Jim Harper of the Cato Institute (and my fellow TLF blogger) said in the same piece by Declan, “What you get in an attorney general is an attorney general, and that’s someone who is going to work to increase the power of law enforcement.”

Well put Harper.

About 10 days ago I gave a presentation to a D.C. business group on “Innovation: The End? Or a New Beginning?” We got into a discussion of high-end immigration and were in general agreement that we should grant easy green cards to all STEM PhDs educated in the U.S., among other enticements to smart immigrants. One commenter then suggested this was a kind of a zero-sum race between the U.S., China, and India for the world’s human capital.

I replied, however, that the technological, economic, and political advance of China and India is a good thing. Innovation anywhere in the world benefits us, too, if we are open to the global economy. For hundreds of years, North America attracted much or most of the world’s financial and human capital because (1) though imperfect, we were an attractive realm of freedom and (2) much of the rest of the world was so inhospitable to innovation, entrepreneurship, education, and was generally politically intolerant. This massive tilt in our direction is now over. Other parts of the world present more opportunities for entrepreneurship and education, and we’re not going to get all the smart people, no matter how open our immigration laws. Doesn’t mean we shouldn’t try to get the smartest people. Just that there’s going to be lots of innovation and new enterprise in new non-U.S. places, and that overall that’s a good thing.

So I was intrigued when an Economist article on this very topic hit my radar yesterday. Turns out Amar Bhidé of Columbia Business School has written a whole book on the subject: The Venturesome Economy.

So does the relative decline of America as a technology powerhouse really amount to a threat to its prosperity? Nonsense, insists Amar Bhidé of Columbia Business School. In “The Venturesome Economy”, a provocative new book, he explains why he thinks this gloomy thesis misunderstands innovation in several fundamental ways.

First, he argues that the obsession with the number of doctorates and technical graduates is misplaced because the “high-level” inventions and ideas such boffins come up with travel easily across national borders. Even if China spends a fortune to train more scientists, it cannot prevent America from capitalising on their inventions with better business models.

That points to his next insight, that the commercialisation, diffusion and use of inventions is of more value to companies and societies than the initial bright spark. America’s sophisticated marketing, distribution, sales and customer-service systems have long given it a decisive advantage over rivals, such as Japan in the 1980s, that began to catch up with its technological prowess. For America to retain this sort of edge, then, what the country needs is better MBAs, not more PhDs.

A lot to agree with. The addition of China and India to the world economy, with new minds and new centers of research and innovation, make it more likely that new general purpose technologies like the integrated circuit or laser will be invented — maybe the next one will be in the field of biotech or energy, who knows. It will be good for humanity, at least for those open to these inventions and, yes, the commercializers. But how does clustering — like Silicon Valley, where a whole ecosystem of talent, firms, and infrastructure spiral virtuously upward — come into play? Does clustering mean as much as it used to in the age of instant global broadband communication? If technology and the corresponding innovations rapidly diffuse everywhere — and they do — it’s largely a matter of who earns the profits. Who sets the standards. And which governmental jurisdictions get to tax the innovations and entrepreneurs. In nationalist terms, where military and political power derive from economic power, it is largely a competition for tax revenues.

But I think Bhidé, at least in this article (I’ve yet to read the book), still underplays the importance of PhDs or their equivalents who not only make the once-in-a-generation breakthroughs but also do help manufacture and commercialize these inventions. And Bhidé probably overplays the the importance of MBAs, who he says are key to our “consumer” culture. Consumers don’t drive the economy. Entrepreneurs do. Yes, MBAs are good at cleaving consumers from their wallets. But consumption is a function of growth and growth expectations, which depend on entrepreneurial confidence. Supply creates its own demand.

If we had a perfectly globalized, flat, frictionless world — it’s true, the “where” of innovation wouldn’t matter much. And we should basically be shooting for that type of world. But until we get there, the “where” of innovation probably matters more than Bhidé would like.

In this game, it’s the farsighted innovators and consumers, who want free trade and tax competition, against the all-too-often shortsighted politicians, who seek the short-term advantage of protectionism, tax gouges, and “energy independence” campaigns. It takes real wisdom to understand that China’s or India’s gain is also our own.

Back in June, Adam Thierer and I denounced (PDF) Kevin Martin’s plans to create broadband utility to provide censored (and very slow) broadband for free to all Americans.  The WSJ reports that this scheme is now at the top of Martin’s December agenda:

The proposal to allow a no-smut, free wireless Internet service is part of a proposal to auction off a chunk of airwaves. The winning bidder would be required to set aside a quarter of the airwaves for a free Internet service. The winner could establish a paid service that would have a fast wireless Internet connection. The free service could be slower and would be required to filter out pornography and other material not suitable for children. The FCC’s proposal mirrors a plan offered by M2Z Networks Inc., a start-up backed by Kleiner Perkins Caufield & Byers partner John Doerr.

Adam’s August follow-up piece is also well worth reading.  

One could speculate as to how big an impact this service would really have.  Having just spent two weeks “wardriving” around Paris, Abu Dhabi and Dubai (looking for open wi-fi hotspots to try to get Internet access on my otherwise non-functional smart phone), I could certainly imagine scenarios in which some people might well use even a slow wireless service at least as a supplement to another provider–if their devices supported it.  But however useful the service might be to some people, and whether any company would actually want to build such a system in the first place if they have to give away such service, I think it’s a safe bet that if this is actually implemented, it will represent a victory for government censorship over content some people don’t like.

If this idea is still alive and kicking when the Obama administration has security escort Martin out of FCC headquarters in January–to hearty applause from nearly all quarters in Washington, no doubt–it will be interesting to see which impulse prevails on the Left, both within the new Administration and in the policy community.  Will the defenders of free expression triumph over those who see ensuring free broadband as a social justice issue?  Or will those on the Left who usually joining us in opposing censorship simply remain silent as the government extends the architecture of censoring the “public airways” onto the Net (where the underlying rationale of traditional broadcast regulation–that parents are powerless–does not apply)?  

Hope springs eternal.

I’m finishing up Stanford Law School professor Lawrence Lessig’s latest book, Remix: Making Art and Commerce Thrive in the Hybrid Economy and wanted to make a brief comment about his call for a “simple blanket license” to solve online music piracy.

Overall, I thought Prof. Lessig made a good case regarding the benefits of “remix culture” and why copyright law should leave breathing room for the various derivative works of amateur creators. On the other hand, Lessig still too often blurs remix culture with “ripoff culture” (i.e., those who aren’t out to create anything new but instead just take something without paying a penny for it).

To solve that latter problem, Lessig again endorses a proposal that William Fisher, Electronic Frontier Foundation, and others have made for collective licensing of all online music, but he fails to drill down into the devilish details. He says, for example, that “by authorizing a simple blanket licensing procedure, whereby users could, for a low fee, buy the right to freely file-share” we could “decriminalize file sharing.” (p. 271)

I respect the fact that Lessig is at least acknowledging a problem exists and proposing a solution to it, but the collective licensing approach will be anything but “simple” in practice. As I have pointed out here before, collective licensing proposals and efforts almost always become compulsory in practice.  They inevitably involve government mandates to determine (1) who pays in, (2) how much they pay in, as well as (3) how much gets paid out and, (4) who gets the money.

That final part is the most challenging: How do we determine who should get paid what under a blanket licensing system for the Net? What formula shall we use to determine why one artists gets more than another? After all, counting downloads won’t be simple, and it can be gamed. Lessig says that “there are plenty of ways that we might tag and trace particular uses of copyrighted material.” (p. 272)  Really? If that was the case today, then we would have a fully functioning copyright clearance and compensation system in place already. But “tagging and tracing” is easier said than done. The fact is, the same complexities we face trying to enforce such tagging and tracing systems under the present copyright system would be present in any compulsory licensing system.

And there are still more questions to consider about collective licensing. For example, how do we restrict free-riders who attempt to evade the blanket charge the rest of us are paying? How would we deal with ISPs who refused to play along and embed such a fee in their monthly bills? (Of course, if the fee was reasonable, many ISPs would likely be willing to pass it along to their customers in exchange for freedom from future copyright liability. After all, some ISPs have already expressed an unwillingness to play the role of copyright cop, so they might initially look favorably on a blanket licensing system. But they might still need to engage in some filtering efforts to determine who is downloading what).

There are many thorny questions about the fairness of imposing a blanket fee on all online users even if they don’t listen to any music, or those who would be offended at the prospect of being forced to pay for certain types of music (think of grandmas paying for gangsta rap). On the opposite end of the equation, there’s the question of fairness to artists who may not want to surrender the rights to their musical creations at government-set terms and rates. Finally, what about other types of media creators and distributors? If we’re going to have a blanket fee for online music, why not movies, television content, video games, and everything else?

Thus, while I appreciate Lessig’s argument in the conclusion of the book about “recognizing the limits of regulation,” it’s important to realize that collective / compulsory licensing introduces a different layer of regulatory complexity and that we will need to deal with many of the same challenges we’re trying to deal with under the existing copyright system. I would have liked to see Prof. Lessig explore these challenges in greater detail in Remix.

(Before you finish reading this, if you’re in D.C., you’ll want to sign up for this policy forum.)

Ben Goddard’s most recent column in The Hill is called “Obama Marketing Lesson,” and he reviews how the Internet and savvy use of media energized President-Elect Obama’s campaign effort. “[S]ocial networks have returned as one of the most powerful forces in politics,” he says.

President-elect Obama has a database of some 10 million names and e-mail addresses, and those who built it have made clear they’ll activate that army to support the new president. MoveOn.org is already preparing its supporters to advocate for progressive policies. Groups like Divided We Fail, Healthcare for America Now! and the American Medical Association are already running television and online campaigns to advocate for healthcare reform.

(Goddard will be lending some of his insights about communications strategies to secure the country against fear and overreaction at our January conference on counterterrorism strategy, by the way.)

The substance of the campaigns he talks about might be far from encouraging for libertarians. None of these are limited government advocates. Politicized online social networks could be the agar in which a new mobocracy grows - something our republican form of government was designed to prevent.

But what’s the solution? To oppose democracy and an active citizenry? Other than restoring constitutional limits on government, I don’t think so. As with speech, the cure for bad democracy is more of it, but good.

It’s not a given that online politics will amount to crowds of avatars with digital pitchforks and torches. The Internet is a fertile medium for careful debate about our public policies. Social networks can be smart and informed - if they get the data.

That process is starting. USASpending.gov delivers data about where federal contracting dollars and grant awards go. This was a project of President-Elect Barack Obama who, with Senator Tom Coburn (R-OK), made transparency a signature issue in the Senate. The non-profit effort that broke ground for this is OMBWatch’s FedSpending.org,which logged its 10 millionth search in June.

My humble effort, WashingtonWatch.com, attaches cost estimates to the bills in Congress and recently welcomed its millionth visitor for the year. The Sunlight Foundation has a list of insanely useful Web sites, each exposing some dimension of government action to greater public scrutiny. The organization is dedicated to developing a stable of private, non-profit, and volunteer efforts that promise revolutionary change once they can access standardized, structured, and open government data.

And that’s the bottleneck: access to good data. Government information now comes to us mediated by government Web sites and government-defined database queries. Getting the raw data would allow all kinds of actors to generate all kinds of new information about government. All citizens would have better information to work with, not only about taxes and spending, but about the results of government programs.

Libertarians bet that this would reduce demand for government. Liberals and progressives believe that this would deliver on the promise of government. If either side wins, we’re better off than we are here in the dark disappointment of government today.

On December 10th, the Cato Institute is having a policy forum on this topic. The title is “Just Give us the Data!“

Just FYI… We’ve created a new category for all our video game-related essays here on the TLF. You can now find all that stuff here.  From now on, you’ll be able to find that tag on the list of categories over there on the right hand side of the page.

Do we have any Australian TLF readers out there? If so, I’d be interested in their input about how well video game censorship works down under.

I follow Australian content regulation via the wonderful “Somebody Think of the Children!” blog, operated by Michael Meloni of Brisbane, Australia. (Mike, if you’re listening, you have at least one big fan here in the U.S. and thank you for keeping the rest of us up-to-speed about censorship developments on the other side of the globe!) This week, Mike reports that another video game (”F.E.A.R. 2″) was refused classification by the Australian government’s Classification Board. Apparently, the “refused classification” designation is the equivalent of a ban in Australia. And F.E.A.R. 2 is the fifth game to receive that designation in 2008. (Other games that have been censored, or subject to some sort of political investigation or pressure, are inventoried at the “Refused Classification.com” website.)

First, let me just say that this again reminds me how lucky we are to have strong free speech protections here in the United States thanks to the First Amendment of our Constitution. I do so much bitching about efforts to regulate speech and media content (especially video games) that I sometimes fail to step back and appreciate how fortunate we are here in the U.S. to not have to worry about an official government ratings body overseeing all game releases. This really hit home for me when I read that “Fallout 3” was one of the 5 games banned this year. It’s a brilliant game and I just can believe it would be censored such that the Australian public could not play the same version of it that I can.

Second, I’m wondering how well these bans work in Australia. A big part of my research on speech regulation is focused on the practicality of censorship in the modern Information Age. [See my "End of Censorship" essay.] Thus — taking off my advocate hat and putting on my academic hat — I would be very interested in hearing from Australians about how effective these regulatory schemes are in practice. Can you still get games from overseas and play them on consoles and PCs in Australia? Do you download uncensored versions (either legally or illegally)? Does the government take steps to stem the flow of unregulated content? Or, are most citizens willing to just played the censored version of games that the Australian government eventually authorizes? Have there been academic studies done on the practical side of content censorship in Australia?

You get the idea. Any input would be greatly appreciated.

[Note: I have also been following the Australian government's big recent push for centralized Internet filtering. Would be interested in input as that as well from Australians citizens.]

Over the past year or so, many market-oriented critics of Google, like Scott Cleland and Richard Bennett, have criticized the company for aligning itself with Left-leaning causes and intellectuals. Lately, however, what I find interesting is how many leading leftist intellectuals and organizations have begun turning on the company and becoming far more critical of the America’s greatest capitalist success story of the past decade. The reason this concerns me is that I see a unholy Right-Left alliance slowly forming that could lead to more calls for regulation not just of Google, but the entire search marketplace.  In other words,  “Googlephobia” could bubble over into something truly ugly.

Consider the comments of Tim Wu and Lawrence Lessig in Jeff Rosen’s huge New York Times Magazine article this weekend, “Google’s Gatekeepers.” Along with Yochai Benkler, Lessig and Wu form the Holy Trinity of the Digital Left; they set the intellectual agenda for the Left on information technology policy issues. Rosen quotes both Wu and Lessig in his piece going negative on Google. Wu tells Rosen that “To love Google, you have to be a little bit of a monarchist, you have to have faith in the way people traditionally felt about the king.” Moreover:

“The idea that the user is sovereign has transformed the meaning of free speech,” Wu said enthusiastically about the Internet age. But Google is not just a neutral platform for sovereign users; it is also a company in the advertising and media business. In the future, Wu said, it might slant its search results to favor its own media applications or to bury its competitors. If Google allowed its search results to be biased for economic reasons, it would transform the way we think about Google as a neutral free-speech tool. The only editor is supposed to be a neutral algorithm. But that would make it all the more insidious if the search algorithm were to become biased.

“During the heyday of Microsoft, people feared that the owners of the operating systems could leverage their monopolies to protect their own products against competitors,” says the Internet scholar Lawrence Lessig of Stanford Law School. “That dynamic is tiny compared to what people fear about Google. They have enormous control over a platform of all the world’s data, and everything they do is designed to improve their control of the underlying data. If your whole game is to increase market share, it’s hard to do good, and to gather data in ways that don’t raise privacy concerns or that might help repressive governments to block controversial content.”

So, here we have Wu raising the specter of search engine bias and Lessig raising the specter of Google-as-panopticon. And this comes on top of groups like EPIC and CDT calling for more regulation of the online advertising marketplace in the name of protecting privacy.  Alarm bells must be going off at the Googleplex. But we all have reason to be concerned because greater regulation of Google would mean greater regulation of the entire code / application layer of the Net.  It’s bad enough that we likely have greater regulation of the infrastructure layer on the way thanks to Net neutrality mandates. We need to work hard to contain the damage of increased calls for government to get its hands all over every other layer of the Net.

My good friend Jim Dunstan will be speaking to the “Games Gateway” meet-up group for the U.S. Mid-Atlantic Region on Dec. 2 at 6:30 pm about the legal issues affecting video game developers.

Did you know that enabling gamers to talk via voice while in a virtual world may subject you to FCC regulations? Or that the Child Online Privacy Protection Act under the FTC must be followed for game sites that knowingly include children under the age of 13? Whether you are a developer of console, PC or online games and worlds, there are legal issues which you need to keep in mind. Many of them are surprising, so join us to hear James Dunstan, partner at Garvey Schubert and Barer, an expert in video game and telecommunications law, discuss the ins and outs of interesting legal issues, what you as a game developer need to keep in mind, and steps to take as you develop your next game.

Besides being a space/Internet/communications lawyer (my alter ego!), Jim’s a video game programmer himself and has spent years advising video game clients.  RSVP here.

Last week I discussed Barbara Esbin’s new PFF paper about the FCC’s absurd investigation into how the cable industry is transitioning analog customers over to digital. This is an essential transition is the cable industry is going to free up bandwidth to compete against telco-provided fiber offerings in the future. The faster the cable industry can migrate its old analog TV customers over to the digital platform, the more bandwidth they can re-deploy for high-speed Net access and services. Mark Cuban helps put things in perspective:

1. the only thing that cable companies, and satellite for that matter have to sell is bandwidth and the applications they can run on that bandwith. More bandwidth means more digital everything.

2. For Basic Cable subscribers that get say, 40 analog channels, they are consuming 40 x 38.6mbs or 1.54 Gbs. Let that sink in. 1.54 Gbs of bandwidth. Compare that to how fast your internet access is. That more bandwidth than your entire neighborhood consumes online, by a lot.

Thats also the equivalent of 500 standard def digital channels. If you convert that to revenue per bit for cable companies, or cost per bit for basic cable consumers, the basic cable customers are getting the best deal in town. By a long shot.

Digital cable customers, not so much. Digital customers are paying multiples of analog customers for bandwidth. In reality, analog customers are getting an amazing deal, and the cable companies have been hesitant to convert them only because of the potential FCC backlash.

I’m as cynical as the next guy when it comes to cable rates and motivations, but the reality is that the longer analog remains, the fewer opportunities to leverage the freed up bandwidth to create next generation bandwidth hog applications. Will the cable companies charge us an a lot for that bandwidth, probably. But when we start to see applications built on top of 250mbs per second and more, it will have far more value to society than watching USA Network on your old analog TV. And Net Neutrality?  Well if everyone had that 1.54gbs available to them, net neutrality would be a non issue. We wouldn’t be arguing about access or pre-emption, we would be arguing about quality of service.

Once again we are reminded that all regulations have opportunity costs and in this case the FCC’s actions could cost consumers the loss (or at least delay) of higher-speed broadband offerings in the near-term.

Incidentally, the bureaucratic dynamic I wrote about in my last post also explains why efforts to “reinvent government” to reduce “waste, fraud, and abuse” never work very well. The problem isn’t that there’s no waste, fraud or abuse, or even that these policies don’t succeed in rooting some of it out. Rather, the problem is that policies designed to make government more efficient and accountable accumulate over time. So the new policies the Obama administration implements to deal with mismanagement that occurred under the Bush administration will largely co-exist with policies implemented under the Clinton, Reagan, Carter, Johnson, Kennedy, and Eisenhower administrations to deal with problems observed under their predecessors. There was probably a good reason for each set of rules by itself, but when you add them up, the result is a kind of death of a thousand cuts where federal bureaucrats can’t get anything done because doing anything requires a huge amount of paperwork. And then of course we have “paperwork reduction acts” where we hire a whole new set of bureaucrats to promulgate still more rules ostensibly designed to make the earlier rules less complicated. Not surprisingly, it doesn’t work especially well.

Another great essay from Paul Graham:

Checks on purchases [at large companies] will always be expensive, because the harder it is to sell something to you, the more it has to cost. And not merely linearly, either. If you’re hard enough to sell to, the people who are best at making things don’t want to bother. The only people who will sell to you are companies that specialize in selling to you. Then you’ve sunk to a whole new level of inefficiency. Market mechanisms no longer protect you, because the good suppliers are no longer in the market.

Such things happen constantly to the biggest organizations of all, governments. But checks instituted by governments can cause much worse problems than merely overpaying. Checks instituted by governments can cripple a country’s whole economy. Up till about 1400, China was richer and more technologically advanced than Europe. One reason Europe pulled ahead was that the Chinese government restricted long trading voyages. So it was left to the Europeans to explore and eventually to dominate the rest of the world, including China.

In more recent times, Sarbanes-Oxley has practically destroyed the US IPO market. That wasn’t the intention of the legislators who wrote it. They just wanted to add a few more checks on public companies. But they forgot to consider the cost. They forgot that companies about to go public are usually rather stretched, and that the weight of a few extra checks that might be easy for General Electric to bear are enough to prevent younger companies from being public at all.

One of the most challenging things about this kind of institutional bloat is that it’s extremely hard to articulate to those in positions of authority precisely how damaging this kind of institutional overhead can be. I’ve been involved in at least one organization (which shall remain nameless) that had created elaborate processes for reviewing and double-checking moderately expensive purchases. And the phenomenon Graham described applied with a vengeance in those cases. The minor cost was the dozens of hours devoted to making the case to the relevant decision-makers for our preferred option. But the more important, but harder to articulate, cost was the way the approval requirements distorted the decision-making process. Since we’d have to defend our choices to decision-makers who didn’t know very much about the options, we tended to overweight factors that could be clearly and easily explained to the decision makers (”This supplier is the market share leader,” “this candidate has a PhD”) and underweight more important but harder-to-articulate qualities of the various options. And because we had to gather a lot of mostly useless information about the options to present to the decision-makers, the most qualified suppliers would often opt out of dealing with us, because they could get business with a lot less hassle elsewhere.

And this organization was not especially large, in the grand scheme of things. These problems tend to get worse as an institution gets larger and older. I was just talking to a friend who works with a firm that provides services to large banks, and she was complaining about the large amounts of money large companies waste on this kind of overhead. And the condition is almost terminal in one of America’s largest and oldest institutions—the federal government. The reason we have $600 toilet seats isn’t that the people buying them are corrupt or incompetent. It’s that selling a toilet seat to the federal government costs $50 to manufacture the toilet seat and $550 to fill out the relevant paperwork.

Via Jeff Jonas, who oh-so-carefully assessed the treatment he received in Stephen Baker’s book The Numerati, I came across this NPR interview with Baker.

In the latter part of the interview, Baker discusses pretty accurately Jonas’ dissent from the passion for predictive data mining in the national security world. That dissent was given expression in the paper Jeff and I wrote, “Effective Counterterrorism and the Limited Role of Predictive Data Mining.”

The data intelligentsia are an interesting subject for a book, of course - it looks The Numerati may have a lot of similarities to Robert O’Harrow’s No Place to Hide - and the NPR interview is interesting. But what makes it notable is Baker’s economic literacy. Or, more accurately, his lack of economic literacy.

Now, I’m not an economist either, so I’ll stand for correction in the comments (actual economists preferred, not just people with strong opinions, please).

At about minute 5:00, for example, Baker says that retailers “detest” a group of shoppers called “barnacles.” These are the hardcore bargain hunters who don’t buy any luxury items or indulge in impulse buying. Baker says that retailers might discourage barnacles from coming into their stores “by giving them coupons or advertisements for things that the barnacles would never want, things that are incredibly expensive.” The conversation turns to how this discouragement is wrongfully discriminatory against poor people and how it denies them savings.

I think Baker’s premise about false advertising to non-customers is pure economic fantasy. It would be commercial suicide to advertise inaccurately toward non-customers, trying to keep those customers away. I see no case where it would make sense for a retailer to do that. More likely, retailers will treat “barnacles” as future potential customers or, at worst, as subjects of indifference. They may not pursue them very hard because barnacles are not their customer demographic, but they will always (correctly) regard a barnacle as a future potential customer. Retailers want everyone to want what they sell. They will never discourage anyone from being interested in their wares. Baker’s ideas here are just silly, as are the conclusions he draws from them.

Baker’s ideas about health insurance are a closer call, but I still think he’s wrong. A little after 7:30, he describes health insurance as a subsidy from the healthy to the less healthy. As everybody learns more details (about health or the subsidy - it’s not clear), he says, insurers will be able to discriminate against us and we will be able to demand special treatment based on what we know about ourselves. This “breaks the social contract we’ve had through the ages.”

Now, the social contract is our agreement to give up the right to use force and give it to the government because of the better security we get from that arrangement. It doesn’t have anything to do with health insurance.

But on the economics, Baker is confused about what health insurance is. Health insurance is a financial service in which people pay a small amount of money regularly over time in exchange for the right to access a large amount of money should certain contingencies (disease or injury) come to pass. Health insurance works as a business because these contingencies occur rarely. Few enough people exercise their rights under insurance contracts that insurers can profit. But every insured person gets the benefit of the right to access needed money in the event of health problems.

Now, as better health information moves many health events from the “risk” category to “certainty” or “impossibility,” those events will become uninsurable. For example, if it’s a certainty that I’m going to get skin cancer, I can’t insure against it because no insurer would accept a small amount of money knowing it will have to pay me a large amount. I just have to save up for it (while medical science comes up with a cure). Likewise, if it’s a certainty that I’m not going to get skin cancer, I’d be a fool to buy insurance for it. Uninsurable.

It’s too bad when we learn that some illness is more likely or a certainty, and many people would like insurance to continue paying for medical conditions like this, even though they are uninsurable. But that’s not insurance; that’s just health care subsidy. Baker appears to think that health insurance is only the subsidy part, and that when conditions become uninsurable that’s insurers discriminating against people. He’s mistaken.

On the issues with data collection and use, I’m sure it’s a better book. Baker’s treatment of Jeff Jonas gets Jeff’s approval, so that’s one in its favor.

Important article in the New York Times yesterday in which Brian Stelter wondered if, in the wake of the Lori Drew verdict this week, “Is lying about one’s identity on the Internet now a crime?” It’s still unclear if the case will have such profound ramifications, but it has many quite worried. Stelter quotes occasional TLF contributor Andrew Grossman, who is Senior Legal Policy Analyst at the Heritage Foundation. Andrew penned an outstanding paper on the case for Heritage in mid-September: “The MySpace Suicide: A Case Study in Overcriminalization.” He summarized the paper and the important issues at stake in the case in this post for the TLF: “Go to Jail for Online Anonymity: The End of Internet Freedom?”  Make sure you read them. I wholeheartedly agree with the concerns Andrew outlines in those essays.

You’ll also want to check out Orin Kerr’s analysis of the case over at the Volohk Consipiracy as well as his tounge-and-cheek piece today about changing the blog’s Terms of Service in light of the decision. I’ve been more focused recently on the threat posed to online anonymity by mandatory online age verification, but this case could have equally important ramifications.

It’s sad that it even needs to be said, but Mike Masnick reminds us that if you’re writing about “Digital Socialism and the Tyranny of the Consumer” then you’re deeply, deeply confused. The “tyranny of the consumer” is the distinctive feature of free-market economies. And if we were going to label someone in the copyright debate “socialist,” it would be those who advocate government-granted monopolies in the reproduction of creative works, not those who want to repeal them. The author of this piece seems not to grasp the distinction between collectively-owned resources and unowned resources. Here’s a handy cheat sheet:

If you’re a supporter of the kinds of institutions we find in the first column, it might be reasonable to call you a “socialist.” If you support those in the second column, not so much.

Over on the Cato@Liberty blog, I’ve done a fairly lengthy write-up of the Google Flu Trends privacy issue. It’s an important problem that I think deserves a little more than dismissal.

My conclusion: “The heart of the problem lies not with the current leader in search, or any other Internet innovator. The problem lies with our unconstrained government.”

If you’re inclined to dismiss this conclusion as libertarian boilerplate, please read the post.

Remember being in grade school when a classmate’s rabble rousing would ruin it for everybody, and the teacher would hold back the class from going to recess? The other students would moan and groan and justifiably feel that punishing the entire class for one person’s misdeeds was unfair. This is what I fear for the tech industry, due to the trouble-making of the financial crisis.

If politicians turn their gaze from the financial sector to tech in 2009, they will likely focus on the issue of personally identifiable information (PII) and privacy. And here’s why.

Now is a tenuous time for all markets.  Our politicians are looking to reassure Americans by regulating areas of the economy where there’s minimal regulation and a perceived lack of transparency. Rightly or wrongly, there’s a perceived lack of transparency in the collection and use of a user’s online data. And the following overarching trends and recent events could combine to further a pro-regulatory privacy agenda in 2009:

• Criminal Abuse: The Federal Trade Commission estimates that as many as 9 million Americans have their identities stolen each year. Increasingly, identity thieves use online phishing scams to deceive consumers. Phishers and other online criminals exist because more and more of us are in the pond—we store and access our personal and sensitive data online.
• Private Abuse: The lack of transparency surrounding the failed experiment with NebuAd’s deep packet inspection behavioral tracking by some ISPs.
• Private Use: The collection of user information is at the center of the web-delivered content and social media that helps define the Web2.0 economy. According to the Interactive Advertising Bureau, Internet advertising revenues for the first six months of 2008 were $11.5 billion, a 15.2 percent increase over the first half of 2007. Search histories and stored cookie profiles help create a user dossier that ad companies use to display specific ads, and to help generate the more than $120 billion in online retail sales expected this year.
• Market Power: The DOJ investigation of the Google and Yahoo deal based on the market power of Google creates a big brother stigma on all online data collection practices.

There’s already one organization that’s been recently formed to promote privacy regulation. It’s the Future of Privacy Forum, and its main goal is to advocate for “opt-in” mandates for the collection of user information.

For the IT and online industries to prevent regulatory spillover, Internet companies will need to continue to demonstrate a strong commitment to protecting the interests of our users. High-profile companies will need to take leadership roles.

Google is perhaps the most aggressive online company to capture and store user data. And despite its announcement that it will anonymize IP addresses on its server log after nine months instead of eighteen, Google has been reticent in disclosing how it shares and processes its user data. Only after threatened regulatory action in California did Google even give prominence to its privacy policy by placing a link to it on its home page.

This does not make Google evil (as Jim Harper recently debated), but regulators will first judge online companies by the practices of its champions, and I fear that Google will not give policymakers the confidence they need. Over the next year, you better believe that Congress, state legislatures, and federal and state attorneys generals will be emboldened by the financial industry’s crisis.  And what’s bad for Google is bad for the gander—given today’s economic climate, the regulatory hammer could fall hard on Google, Yahoo, Microsoft and ripple throughout the Internet and IT industry.