June 2008

June 30, 2008 4:11PM

Our Collectivist Candidates, Past and Present

I’ve just been reading Bill Kauffman’s fine book Ain’t My America: The Long, Noble History of Anti‐​War Conservatism and Middle‐​American Anti‐​Imperialism (see him talk about it here), and I ran across this quotation from Bill Clinton in 1997:

It’s hard when you’re not threatened by a foreign enemy to whip people up to a fever pitch of common, intense, sustained, disciplined endeavor.

Indeed it is. Outside of wartime it is difficult, even impossible, to rally millions of free citizens around a common aim. When you’re not threatened by war or occupation, people have their own endeavors, their own purposes, their own “pursuits of industry and improvement,” as Jefferson put it, to worry about. That’s why collectivists and statists are always trying to gin up war fever in metaphorical wars like the War on Poverty, the War on Drugs, and the Energy Crisis.

And as I wrote recently in the Wall Street Journal, this martial spirit remains a temptation to our current candidates. Barack Obama told Wesleyan graduates that “our individual salvation depends on collective salvation.” John McCain calls on us to serve “a national purpose that is greater than our individual interests,” preferably by doing calisthenics in uniform in front of city hall. Politicians like that, as Michelle Obama, “will never allow you to go back to your lives as usual.”

June 30, 2008 2:24PM

Obama’s Kansas Values

The Washington Post has a front‐​page story on how Barack Obama is playing in the heartland of America, Findlay, Ohio. Not so good, judging by the lengthy interviews with good solid middle‐​Americans who believe things like this:

“I think Obama would be a disaster, and there’s a lot of reasons,” said Pollard, explaining the rumors he had heard about the candidate from friends he goes camping with. “I understand he’s from Africa, and that the first thing he’s going to do if he gets into office is bring his family over here, illegally. He’s got that racist [pastor] who practically raised him, and then there’s the Muslim thing. He’s just not presidential material, if you ask me.”

There’s plenty more in the story. Which is why Obama is now running his famous television ad, titled “Country I Love.” And judging by the Post story, the ad is working very well with those who see it, at least those who are sympathetic to Obama in the first place. Reporter Eli Saslow writes:

The new advertisement running in Findlay, in which Obama is pictured with his white mother and white grandparents as he talks about developing a “deep and abiding faith in the country I love” while growing up in the Kansas heartland…

But of course Obama didn’t grow up in Kansas. He was born in Hawaii and grew up there and in Indonesia. And the ad doesn’t claim that he did. In the ad Obama says:

I was raised by a single mom and my grandparents.…They taught me values straight from the Kansas heartland where they grew up.

Talk about a guy who isn’t well known yet, on whom everybody can project both good and bad images. People all over America are hearing on the internet or at the beauty salon that he’s a Muslim born in Africa, and a Washington Post reporter somehow thinks he grew up in Kansas.

June 30, 2008 12:38PM

On Onions, Oil, and ‘Speculators’

Politicians who blame “speculators” in futures markets for the run up in oil prices — such as Sen. Byron Dorgan (D-N.D.) writing in this morning’s USAToday — should consider a lesson from the lowly onion.

Onions are one of the few commodities in the United States for which there are no futures markets, according to an item published Friday in Fortune magazine. (Futures markets allow the sale of commodities for set prices at future dates.) It seems that in the late 1950s domestic onion producers blamed those same speculators in futures markets for driving onion prices DOWN. They successfully lobbied Congress to ban all futures trading in onions, a ban that is still in place a half century later.

So has the absence of futures‐​market speculation kept onion prices low and stable? Quite the contrary. According to Fortune:

And yet even with no traders to blame, the volatility in onion prices makes the swings in oil and corn look tame, reinforcing academics’ belief that futures trading diminishes extreme price swings. Since 2006, oil prices have risen 100%, and corn is up 300%. But onion prices soared 400% between October 2006 and April 2007, when weather reduced crops, according to the U.S. Department of Agriculture, only to crash 96% by March 2008 on overproduction and then rebound 300% by this past April.

Sen. Dorgan and his allies will need to find someone else to blame for volitale and rising oil prices.

June 30, 2008 12:23PM

“Your Epidermis is Showing!”

When I was a young nerd, alerting kids about the exposure of their epidermis was a favorite school‐​bus taunt, a great one to use on kids whose vocabulary wasn’t above grade‐​level like mine. “Epidermis” is, of course, a fancy word for skin. A good deal of everyone’s epidermis is showing most of the time, and it doesn’t matter. But kids can unnerve other kids just by telling them that they are exposed in ways they don’t understand, and that’s a fun thing to do.

Such is the flavor of news that data breach reports are up 69 percent so far in 2008. It sounds bad, and in a sense it is: By definition, a “breach” of data is an unintentional release. But the important question is whether a data breach results in any kind of actual harm.

There has been some research on the relationship between data breach and identity fraud, and the connection is fairly weak. New account fraud, which is the most damaging to consumers because of its effect on their financial reputations, takes some guile and work. The limiting factor on new account fraud is probably time and effort, not access to the kinds of information released in the garden variety data breach.

Much credit has been awarded to laws requiring disclosure of data breaches, especially California’s breach disclosure law, S.B. 1386. It’s worth noting that the news item linked first above cites a rise in reports of data breaches, not a rise in actual breaches. One would expect more reports as more entities come into compliance with disclosure laws. The rate of actual breaches and any trends are not part of this reporting.

A paper presented at WEIS 2008 Workshop on the Economics of Information Security last week has some relevant information. The paper is called “Do Data Breach Disclosure Laws Reduce Identity Theft?” and it finds “no statistically significant effect that [data breach disclosure] laws reduce identity theft, even after considering income, urbanization, strictness of law and interstate commerce. If the probability of becoming a victim conditional on a data breach is very small, then the law’s maximum effectiveness is inherently limited.”

Of course, data breach disclosure laws may cause firms to improve their data security practices, but doing so for compliance purposes and not for harm prevention will cause them to overspend on data security, with the costs passed on to their customers in the form of higher prices and to owners in the form of lower dividends and stock prices. Spending on security that doesn’t cost‐​effectively secure against real threats lowers consumer welfare, as economists would say.

The damage that might be done by any data breach is very contextual. Sometimes consumers should be alerted about it, and sometimes alerting them is a waste of everyone’s time. Sometimes other responses are more appropriate, and sometimes data breaches require no response at all. People have worked hard to tailor data breach disclosure laws, but this kind of regulation is inherently a clumsy instrument, and, again, disclosure may not even be the right response.

It’s looking more and more like data breach disclosure laws parallel the schoolyard taunt “your epidermis is showing.” Three years ago, I wrote about data security regulation suggesting that common law liability for holders of sensitive data might be a better way to ferret out the right responses to data breaches, and to make sure that data holders internalize risks. I’m still above grade‐​level, you see .…

June 29, 2008 2:54PM

This Little Philly Did NOT Go to Market

The Washington Post claims that Philadelphia’s contracting out of 45 public schools to private management firms represented a test of whether “the free market could educate children more efficiently than the government.” It represented no such thing, and to claim otherwise the Post must not understand the city’s contracting arrangements or the nature of free markets.

Families cannot choose from among the privately managed schools. Students are assigned to these schools based on where they live, just as is the case with traditional state‐​run schools. Markets require consumer choice, and no consumer choice exists in this contracting arrangement. A free market also requires significant autonomy for providers. Under the contract signed by Edison Schools, the largest contractor, its teachers and principals remain employees of the school district. Edison is also bound to honor the terms of the collective barganing agreement reached between the local teachers’ union and the district. Hence, Edison may only make “recommendations” as to who will work in its schools, and has little input on the salaries they will be paid or the length of the school day or year, or other relevant factors. Finally, markets require a price system driven by supply and demand, but the private management firms may not charge tuition, and in any event they are not chosen so there is no basis for demand‐​driven pricing.

Philadelphia did not create a “free market” in education. What it did was to subcontract aspects of its monopoly to providers of its own choosing — an arrangement not too far afield from the one that gave the Defense Department $640 toilet seats. As I noted five years ago, there was never any reason to expect this subcontracting to yield dramatic gains.

As if to drive home the lack of research that went into this story, the Post’s reporter asserts that DC public schools suffer “a lack of funding.” Three months ago, I calculated the total per pupil spending in the District this year as $24,600, roughly $10,000 more than total per pupil spending in area private schools. That calculation was published in… the Washington Post (with further details on this blog).

June 29, 2008 2:52PM

John Edwards’s Constituents

Today I saw a John Edwards bumper sticker — the first one I can really recall — on a beautiful Audi convertible parked in a luxury development in a wealthy suburb of Washington, D.C. Just an idle question: Do you think it’s more likely that this John Edwards supporter is part of Edwards’s much touted constituency of mill workers and “regular, hard‐​working Americans” or of Edwards’s real constituency of trial lawyers and lobbyists?