Topic: Regulatory Studies

Picture Don Draper Stamping on a Human Face, Forever

Last week, a coalition of 10 privacy and consumer groups sent letters to Congress advocating legislation to regulate behavioral tracking and advertising, a phrase that actually describes a broad range of practices used by online marketers to monitor and profile Web users for the purpose of delivering targeted ads. While several friends at the Tech Liberation Front have already weighed in on the proposal in broad terms – in a nutshell: they don’t like it – I think it’s worth taking a look at some of the specific concerns raised and remedies proposed. Some of the former strike me as being more serious than the TLF folks allow, but many of the latter seem conspicuously ill-tailored to their ends.

First, while it’s certainly true that there are privacy advocates who seem incapable of grasping that not all rational people place an equally high premium on anonymity, it strikes me as unduly dismissive to suggest, as Berin Szoka does, that it’s inherently elitist or condescending to question whether most users are making informed choices about their privacy. If you’re a reasonably tech-savvy reader, you probably know something about conventional browser cookies, how they can be used by advertisers to create a trail of your travels across the Internet, and how you can limit this.  But how much do you know about Flash cookies? Did you know about the old CSS hack I can use to infer the contents of your browser history even without tracking cookies? And that’s without getting really tricksy. If you knew all those things, congratulations, you’re an enormous geek too – but normal people don’t.  And indeed, polls suggest that people generally hold a variety of false beliefs about common online commercial privacy practices.  Proof, you might say, that people just don’t care that much about privacy or they’d be attending more scrupulously to Web privacy policies – except this turns out to impose a significant economic cost in itself.

The truth is, if we were dealing with a frictionless Coaseian market of fully-informed users, regulation would not be necessary, but it would not be especially harmful either, because users who currently allow themselves to be tracked would all gladly opt in. In the real world, though, behavioral economics suggests that defaults matter quite a lot: Making informed privacy choices can be costly, and while an opt-out regime will probably yield tracking of some who would prefer not to be under conditions of full information and frictionless choice, an opt-in regime will likely prevent tracking of folks who don’t object to tracking. And preventing that tracking also has real social costs, as Berin and Adam Thierer have taken pains to point out. In particular, it merits emphasis that behavioral advertising is regarded by many as providing a viable business model for online journalism, where contextual advertising tends not to work very well: There aren’t a lot of obvious products to tie in to an important investigative story about municipal corruption. Either way, though, the outcome is shaped by the default rule about the level of monitoring users are presumed to consent to. So which set of defaults ought we to prefer?

Here’s why I still come down mostly on Adam and Berin’s side, and against many of the regulatory remedies proposed. At the risk of stating the obvious, users start with de facto control of their data. Slightly less obvious: While users will tend to have heterogeneous privacy preferences – that’s why setting defaults either way is tricky – individual users will often have fairly homogeneous preferences across many different sites. Now, it seems to be an implicit premise of the argument for regulation that the friction involved in making lots of individual site-by-site choices about privacy will yield oversharing. But the same logic cuts in both directions: Transactional friction can block efficient departures from a high-privacy default as well. Even a default that optimally reflects the median user’s preferences or reasonable expectations is going to flub it for the outliers. If the variance in preferences is substantial, and if different defaults entail different levels of transactional friction, nailing the default is going to be less important than choosing the rule that keeps friction lowest. Given that most people do most of their Web surfing on a relatively small number of machines, this makes the browser a much more attractive locus of control. In terms of a practical effect on privacy, the coalition members would probably achieve more by persuading Firefox to set their browser to reject third-party cookies out of the box than from any legislation they’re likely to get – and indeed, it would probably have a more devastating effect on the behavioral ad market. Less bluntly, browsers could include a startup option that asks users whether they want to import an exclusion list maintained by their favorite force for good.

On the model proposed by the coalition, individuals have to make affirmative decisions about what data collection to permit for each Web site or ad network at least once every three months, and maybe each time they clear their cookies. If you think almost everyone would, if fully informed, opt out of such collection, this might make sense. But if you take the social benefits of behavioral targeting seriously, this scheme seems likely to block a lot of efficient sharing. Browser-based controls can still be a bit much for the novice user to grapple with, but programmers seem to be getting better and better at making it more easy and automatic for users to set privacy-protective defaults. If the problem with the unregulated market is supposed to be excessive transaction costs, it seems strange to lock in a model that keeps those costs high even as browser developers are finding ways to streamline that process. It’s also worth considering whether such rules wouldn’t have the perverse consequence of encouraging consolidation across behavioral trackers. The higher the bar is set for consent to monitoring, the more that consent effectively becomes a network good, which may encourage concentration of data in a small number of large trackers – not, presumably, the result privacy advocates are looking for. Finally – and for me this may be the dispositive point – it’s worth remembering that while American law is constrained by national borders, the Internet is not. And it seems to me that there’s a very real danger of giving the least savvy users a false sense of security – the government is on the job guarding my privacy! no need to bother learning about cookies! – when they may routinely and unwittingly be interacting with sites beyond the reach of domestic regulations.

There are similar practical difficulties with the proposal that users be granted a right of access to behavioral tracking data about them.  Here’s the dilemma: Any requirement that trackers make such data available to users is a potential security breach, which increases the chances of sensitive data falling into the wrong hands. I may trust a site or ad network to store this information for the purpose of serving me ads and providing me with free services, but I certainly don’t want anyone who sends them an e-mail with my IP address to have access to it. The obvious solution is for them to have procedures for verifying the identity of each tracked user – but this would appear to require that they store still more information about me in order to render tracking data personally identifiable and verifiable. A few ways of managing the difficulty spring to mind, but most defer rather than resolve the problem, and add further points of potential breach.

That doesn’t mean there’s no place for government or policy change here, but it’s not always the one the coalition endorses. Let’s look  more closely at some of their specific concerns and see which, if any, are well-suited to policy remedies. Only one really has anything to do with behavioral advertising, and it’s easily the weakest of the bunch. The groups worry that targeted ads – for payday loans, sub-prime mortgages, or snake-oil remedies – could be used to “take advantage of vulnerable consumers.” It’s not clear that this is really a special problem with behavioral ads, however: Similar targeting could surely be accomplished by means of contextual ads, which are delivered via relevant sites, pages, or search terms rather than depending on the personal characteristics or browsing history of the viewer – yet the groups explicitly aver that no new regulation is appropriate for contextual advertising. In any event, since whatever problem exists here is a problem with ads, the appropriate remedy is to focus on deceptive or fraudulent ads, not the particular means of delivery. We already, quite properly, have rules covering dishonest advertising practices.

The same sort of reply works for some of the other concerns, which are all linked in some more specific way to the collection, dissemination, and non-advertising use of information about people and their Web browsing habits. The groups worry, for instance, about “redlining” – the restriction or denial of access to goods, services, loans, or jobs on the basis of traits linked to race, gender, sexual orientation, or some other suspect classification. But as Steve Jobs might say, we’ve got an app for that: It’s already illegal to turn down a loan application on the grounds that the applicant is African American. There’s no special exemption for the case where the applicant’s race was inferred from a Doubleclick profile. But this actually appears to be something of a redlining herring, so to speak: When you get down into the weeds, the actual proposal is to bar any use of data collected for “any credit, employment, insurance, or governmental purpose or for redlining.” This seems excessively broad; it should suffice to say that a targeter “cannot use or disclose information about an individual in a manner that is inconsistent with its published notice.”

Particular methods of tracking may also be covered by current law, and I find it unfortunate that the coalition letter lumps together so many different practices under the catch-all heading of “behavioral tracking.” Most behavioral tracking is either done directly by sites users interact with – as when Amazon uses records of my past purchases to recommend new products I might like – or by third party companies whose ads place browser cookies on user computers. Recently, though, some Internet Service Providers have drawn fire for proposals to use Deep Packet Inspection to provide information about their users’ behavior to advertising partners – proposals thus far scuppered by a combination of user backlash and congressional grumbling. There is at least a colorable argument to be made that this practice would already run afoul of the Electronic Communications Privacy Act, which places strict limits on the circumstances under which telecom providers may intercept or share information about the contents of user communications without explicit permission. ECPA is already seriously overdue for an update, and some clarification on this point would be welcome. If users do wish to consent to such monitoring, that should be their right, but it should not be by means of a blanket authorization in eight-point type on page 27 of a terms-of-service agreement.

Similarly welcome would be some clarification on the status of such behavioral profiles when the government comes calling. It’s an unfortunate legacy of some technologically atavistic Supreme Court rulings that we enjoy very little Fourth Amendment protection against government seizure of private records held by third parties – the dubious rationale being that we lose our “reasonable expectation of privacy” in information we’ve already disclosed to others outside a circle of intimates. While ECPA seeks to restore some protection of that data by statute, we’ve made it increasingly easy in recent years for the government to seek “business records” by administrative subpoena rather than court order. It should not be possible to circumvent ECPA’s protections by acquiring, for instance, records of keyword-sensitive ads served on a user’s Web-based e-mail.

All that said, some of the proposals offered up seem,while perhaps not urgent, less problematic. Requiring some prominent link to a plain-English description of how information is collected and used constitutes a minimal burden on trackers – responsible sites already maintain prominent links to privacy policies anyway – and serves the goal of empowering users to make more informed decisions. I’m also warily sympathetic to the idea of giving privacy policies more enforcement teeth – the wariness stemming from a fear of incentivizing frivolous litigation. Still, the status quo is that sites and ad networks profitably elicit information from users on the basis of stated privacy practices, but often aren’t directly liable to consumers if they flout those promises, unless the consumer can show that the breach of trust resulted in some kind of monetary loss.

Finally, a quick note about one element of the coalition recommendations that neither they nor their opponents seem to have discussed much – the insistence that there be no federal preemption of state privacy law. I assume what’s going on here is that the privacy advocates expect some states to be more protective of privacy than Congress or the FTC would be, and want to encourage that, while libertarians are more concerned with keeping the federal government from getting involved at all. But really, if there’s an issue that was made for federal preemption, this is it.  A country where vendors, advertisers, and consumers on a borderless Internet have to navigate 50 flavors of privacy rules to sell a banner add or an iTunes track does not sound particularly conducive to privacy, commerce, or informed consumer choice.

Medium Tobacco Fights Back

The New York Times has an editorial today titled “Big Tobacco Fights Back,” criticizing tobacco companies’ lawsuit against new advertising restrictions. Repeatedly, the Times attributes the lawsuit to “the [tobacco] industry.”

But as my former Cato colleague Jacob Grier notes, the biggest tobacco company (Philip Morris) is on the Times’s side in opposing the lawsuit. So wouldn’t it make more sense to title the editorial “Medium-Size Tobacco Fights Back”?

Lighting for People, not Politics

Unfortunately, there are many good (and sad) examples of Uncle Sam’s insatiable desire to regulate the smallest aspects of our lives.  Legislators can’t even let us decide which light bulbs to buy.  Government believes that it knows best, and is banning the venerable incandescent bulb.

Lighting consultant Howard Brandston makes a plaintive plea for lighting that serves people rather than politics:

The Energy Independence and Security Act of 2007 will effectively phase out incandescent light bulbs by 2012-2014 in favor of compact fluorescent lamps, or CFLs. Other countries around the world have passed similar legislation to ban most incandescents.

Will some energy be saved? Probably. The problem is this benefit will be more than offset by rampant dissatisfaction with lighting. We are not talking about giving up a small luxury for the greater good. We are talking about compromising light. Light is fundamental. And light is obviously for people, not buildings. The primary objective in the design of any space is to make it comfortable and habitable. This is most critical in homes, where this law will impact our lives the most. And yet while energy conservation, a worthy cause, has strong advocacy in public policy, good lighting has very little.

He hopes for a congressional reversal of the ill-considered prohibition.  If that doesn’t work, people do have one more option:  stock-piling bulbs for future use.  Of course, that probably would lead to the creation of a federal light bulb police, tasked with wiping out the black market in incandescent bulbs.  “Use a bulb, go to jail” may become the newest law enforcement slogan!

FTC to Protect Us from Multi-Colored Beer Cans

bud lightRecently Anheuser-Busch  hit upon the marketing idea of selling Bud Light beer in cans decorated with the college-team colors.  As the Federal Trade Commission (FTC) doesn’t have much else to do - it’s not like there’s been say fraud going on in the mortgage market - it quickly turned its attention to the issue, expressing “grave concern” that these team-colored cans would encourage underage and binge drinking.

As quoted in the Wall Street Journal,  FTC attorney Janet Evans said “this does not appear to be responsible activity.”  What’s not responsible is the FTC wasting taxpayer resources wondering what color beer cans we are drinking out of.  When I was an underage drinker, the last thing on my mind was the color of the can.  The ultimate purpose of the marketing campaign is to shift demand away from boring, non-team color beer cans toward team color cans.  If beer drinkers (or can collectors) get some pleasure out of a certain colored can, where’s the fraud or deception in that?

The real purpose of FTC’s interest is revealed in the comments of the Licensing Resource Group, which represents the colleges in protecting their logos.  Almost all the colleges that have asked Anheuser-Busch to stop selling the cans have cited trademark concerns.  Yet none of the cans have any team logos.  While no one would dispute the right of a college to control the use of its team logo, is it really reasonable to conclude that the colleges also own the rights to the use of certain colors?

Virginia Bureaucrats Look to Extort Yoga Instructors

Last month I blogged about attempts by various state governments to regulate yoga instructors by forcing them to obtain a costly government license.  Today the Washington Post has a story on Virginia’s efforts to place the government boot on the necks of its yogis:

The State Council of Higher Education for Virginia recently declared that studios offering yoga teacher instruction must be certified. That involves a $2,500 fee, audits, annual charges of at least $500 and a pile of paperwork.

Let’s call this what it is: extortion.  And if you still harbor the illusion that bureaucrats don’t sit around thinking up ways to pilfer more money from productive members of society, think again:

In Virginia, yoga teacher training first hit the state’s radar late last year after a state employee conducting school audits happened upon an advertisement, said Linda Woodley, the higher education council’s director of private and out-of-state postsecondary education.  Before that, Woodley said, ‘I was not aware they existed, and they were not aware we existed.’

Well congratulations, Ms. Woodley – the yogi community now knows you exist.

Studios can teach lotus poses to as many clients as they like, state officials said. But teacher training programs, which the state views as similar to dog grooming, massage therapy or other classes intended to prepare someone for a job, must be certified under state law. (For instance, Simply Ballroom Dance Teachers Academy, Danny Ward Horseshoeing School and Jiggers Bartending School are certified.)

Virginia citizens should sleep sound at night knowing ballroom dance teachers, horseshoers, and bartenders are government certified.

Woodley said it’s also about ensuring that students who plunk down cash for training programs that can run a few thousand dollars are getting their money’s worth. Plus, she said, being listed on the government registry will give schools a marketing tool, like a Good Housekeeping seal of approval.

Good Housekeeping seal of approval?  Ladies and gentleman, this is the mentality of the state bureaucrats that the federal government has tasked with “stimulating” the economy with YOUR money.

Why Future Net Negative Impacts of Global Warming Are Overestimated: Response to Conor Clarke, Part IV

This post responds to the last of Conor Clarke’s comments on my study, “What to Do About Global Warming,” published by Cato. This series started with the imaginatively titled, Response to Conor Clarke Part I, and continued with Cherry Picking Climate Catastrophes and  Do Industrialized Countries Have a Responsibility for the Well-Being of Developing Nations?

CONOR said:

I think Goklany is a bit picky and choosey with the evidence. … I also like the Goklany paper a lot. [THANK YOU!! I’ll take whatever I get.] But in this case it’s hard to resist. [Emphasis in original.]

To take one example (of several), Goklany’s hunger estimates rely heavily on those published by Global Environmental Change (GEC), which he uses to make the argument that “the world will be better off in 2085 with respect to hunger than it was in 1990 despite any increase in population.” But the GEC produced two estimates of hunger and climate change – one that assumes the benefits of CO2 fertilization and one that does not. Goklany picks the former estimate (I have no idea why), despite the fact the GEC says the effects of climate change “will fall somewhere between” the two. … [I}f you embrace anything other than the most Pollyanish CO2 fertilization estimate – the one that Goklany uses in his Cato paper – we will be living in a world in which climate change puts tens of millions of additional people at risk of starvation by 2085.

My RESPONSE:

First, let me elaborate on my selection of the set of studies that I used in my paper.  Essentially, the selected set of studies (published in Global Environmental Change) was the only one that had estimated global impacts using detailed process models in conjunction with the IPCC’s latest scenarios, and were peer reviewed.  Moreover, they come with a provenance that people who may be unhappy with my results cannot impugn. [This is important only because many people arguing about global warming seem to be more concerned about who did the study and whether the results bolster their predilections, than how the study was done.]  Specifically, virtually all the authors were intimately connected with the IPCC. The senior author of the hunger study was also the co-chairman of the IPCC’s Work Group II, which was responsible for compiling the portion of the IPCC’s latest assessment that dealt with impacts, vulnerability and adaptation. The authors of the water resource and coastal flooding studies were the lead authors of corresponding chapters in that IPCC report. An earlier version of the same set of impact studies was the basis for the claim by Sir David King, erstwhile science advisor to Her Majesty’s Government, that global warming was a more serious threat than terrorism (see here). The Stern Review also drew quite heavily from these studies (see below).

Let’s now turn to Conor’s comments on the hunger study and why I assumed that the benefits of carbon fertilization would be realized in the future. Indeed, the hunger study (Parry et al.) produced two separate estimates — one assuming that carbon fertilization is a reality, and the other assuming zero carbon fertilization.  But the two estimates are not equally likely. There are literally hundreds, if not thousands of experimental studies that show carbon fertilization is a reality (see also here), that higher CO2 not only increases the rate of photosynthesis, but also increases the efficiency of water use by plants (i.e., it confers a degree of immunity to drought), among the many other benefits CO2 bestows on plants and other carbon based life, including all creatures – big and small – in the biosphere that depend directly or indirectly on photosynthesis.  The probability that direct CO2 effects on crop growth are zero or negative is virtually non-existent (IPCC, 2001b: 254–256). Second, the positive effect of carbon fertilization was based on the average of experimental studies; it’s not an upper bound estimate. On the other hand, the notion of “zero fertilization” is an assumption not supported by the vast majority of empirical data. So averaging results from the two estimates makes no sense and would understate the average benefits that would likely result from carbon fertilization.

Notably, the Stern Review, invoked a study by Long et al. (subscription required) to estimate future levels of hunger based on “zero fertilization” using precisely the same study (Parry et al.) that I  – and Conor, in his comments – used. But Long et al.’s results have been disputed by other scientists (also see here), including some contributors to the IPCC’s assessment.  More importantly, Long et al. only suggested that under field conditions, carbon fertilization may be a third to less than half of what is indicated by experiments using growth chambers, not that it would be zero. It also noted that fertilization may be stronger under drought conditions or if sufficient nitrogen is employed. But drought is one of the bogeymen of global warming, and increased use of nitrogen is precisely the kind of adaptation that would become more affordable in the future as countries become wealthier, as they should if the IPCC’s scenarios are to be given any credence.  Indeed, that is one of the adaptations allowed in Parry et al. Also, the fact that crop yields are higher in richer countries is partly because they can more easily afford nitrogen fertilizers (see here, p. 78). In fact, China’s nitrogen use per hectare is already among the world’s highest. For all these reasons, even if one accepts the Long et al. study as gospel, it is reasonable to assume that the effect of carbon fertilization will be closer to the “higher” estimate from the Parry et al. study than to the “zero fertilization” case.

But, more importantly, the uncertainties related to the magnitude of the CO2 fertilization effect is most likely swamped by a major source of overestimation of hunger in Parry et al.’s estimates.

Although Parry et al. allows for some secular (time-dependent) increases in agricultural productivity, increases in crop yield with economic growth due to greater application of fertilizer and irrigation in richer countries, decreases in hunger due to economic growth, and for some adaptive responses at the farm level to deal with global warming, Parry et al. itself acknowledged that these adaptive responses are based on the “current range” of available technologies, not on technologies that would be available in the future or any technologies developed to specifically cope with the negative impacts of global warming (Parry et al., p. 57).  The potential for future technologies to cope with global warming is large, especially if one considers bioengineered crops (see here, chapter 9), which Parry et al. admittedly didn’t consider. Moreover, an examination of the sources cited in Parry et al. indicates that the “current range” of technology is actually based on 1990s or earlier technology. That is, it is not quite current.

The approach used in Parry et al. to estimate the impacts of global warming decades from now is, in essence, tantamount to estimating today’s level of hunger (and agricultural production) based on the technology of 50 years ago. In fact, the major reason why Paul Ehrlich’s Population Bomb turned out to be a dud was that it underestimated or ignored future developments in agricultural technology.

As noted in Part I of this series of responses, ignoring technological change can, over decades, lead to overestimating adverse impacts by orders of magnitude. Notably, due to a combination of technological change and increasing affluence, U.S. death rates due to various water related diseases – dysentery, typhoid, paratyphoid, other gastrointestinal disease, and malaria – declined by 99%–100% from 1900 to 1970.  For the same reasons, during the twentieth century, global death rates from extreme weather events declined by over 95%.

This basic methodological shortcoming, however, is not unique to Parry et al. It is common to ALL global warming impact studies that I have read – and I have read plenty of them.

For all these reasons, the adverse impacts of global warming for hunger (as well as other aspects of human well-being, e.g., due to malaria and coastal flooding) that I used in my paper are, more likely than not, substantially overestimated. And by the same token, ignoring technological change (and not fully accounting for increases in wealth) also assures that the positive impacts of global warming are likely to be underestimated, further overestimating the net negative impacts of global warming.

Therefore, far from being Pollyanish, the estimates used in my paper most likely substantially exaggerate the net negative impacts of global warming. Despite that, those estimates cannot justify emissions cuts that go beyond no-regret actions at this time or through the foreseeable future.

American People to Government: Don’t Mess Up the Economy

The American people get it.  The government is likely to go too far in “fixing” the economy. 

Explains Rasmussen Reports:

Fifty-four percent (54%) of U.S. voters worry more that the federal government will try to do too much to fix the economy rather than not enough. That’s up three points from a month ago and the highest level of concern found on this question since Barack Obama was elected president.

A new Rasmussen Reports national telephone survey finds that just 37% are more worried that the federal government will not do enough in reacting to the nation’s current economic problems. That’s little changed from last month and down from a high of 44% in January.

Last October, as the meltdown of Wall Street dominated the front pages, 63% worried that the government would do too much. By the first week of November, that number had fallen to 46% and it stayed below the 50% level for several months.

Among the nation’s Political Class, (70%) worry that the government will not do enough. As for those who hold populist or Mainstream views, an identical percentage (70%) fear the government will do too much.

Notable is the contrary thinking of the political class.  The vast majority worries that the government won’t do enough.  Unfortunately, this group has far more influence over what government is likely to do than does the general public.