“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 … .

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).

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?

Should the Internet Be Nationalized?

Vint Cerf is the nominal “father of the Internet,” and currently a vice president and “Chief Internet Evangelist” at Google. His employer recently unveiled an “Internet for Everyone” public policy program, which I view with skepticism. (Julian Sanchez nailed the free-lunchism of “Internet for Everyone,” saying, “All this may have a whiff of ‘and a pony’ about it.”)

At the same conference where the Google campaign was introduced, Cerf made a casual comment suggesting that it might be better if the Internet were nationalized. This is a bad idea, and even the blogger who wrote up Cerf’s comment said so.

I posted about it at TechLiberationFront, where Cerf has been good enough to comment. I don’t think policies based on his predisposition in favor of government ownership and control would result in good outcomes. Same goes for Google’s public policy program to the extent it shares those premises.

McCain and Our Fundamental Rights

Sen. John McCain issued a ringing endorsement of the Supreme Court’s Heller decision:

Today’s ruling recognizes that gun ownership is a fundamental right – sacred, just as the right to free speech and assembly.

You can’t get much stronger than that. Except …  wait … what was it McCain said about our sacred right to free speech? Oh, right, two years ago on the Don Imus show he said, “I would rather have a clean government than one where quote First Amendment rights are being respected, that has become corrupt.” So when McCain says that our Second Amendment rights are just as fundamental and sacred as our First Amendment rights, maybe he’s pulling a bait-and-switch. Because he’s thoroughly indifferent to the First Amendment.

In his statement on the Heller decision McCain went on to say, “This ruling does not mark the end of our struggle against those who seek to limit the rights of law-abiding citizens. We must always remain vigilant in defense of our freedoms.”

So true.

For His Own Good

It’s not one of the big cases decided by the Supreme Court this term, but Indiana v. Edwards  shows how these justices are all over the map – from a libertarian legal perspective.  The issue was whether a person can choose to represent himself in court in a criminal case.  This corner of the law was in pretty good shape – the rule that courts followed was this: If the defendant knowingly and voluntarily waives the right to counsel, he can proceed to defend himself (so long as he is orderly and follows the judge’s rules as all attorneys must do).  Some liberals object and say he’ll just screw up and the trial will not be fair.  The response has been that the trial judge should warn the defendant about such risks at the outset, but it’s his case, his liberty on the line, and thus his decision.

This term presented the case of a mentally ill defendant who wanted to represent himself.  The trial judge denied his request.  Some persons are found to be mentally incompetent to stand trial – even with an attorney’s help – but that was not the case here.  The defendant was found to be competent to stand trial but, according to the trial judge, incompetent to represent himself.  Counsel was appointed and he was subsequently convicted by a jury.  He appealed his case all the way to the Supreme Court, which affirmed the lower court’s handling of the case.  Interestingly, Justice Scalia filed a dissenting opinion (which Justice Thomas joined). 


In my view the Constitution does not permit a State to substitute its own perception of fairness for the defendant’s right to make his own case before the jury–a specific right long understood as essential to a fair trial. … [T]he loss of ‘dignity’ the right is designed to prevent is not the defendant’s making a fool of himself by presenting an amateurish or even incoherent defense.  Rather, the dignity at issue is the supreme human dignity of being master of one’s fate rather than a ward of the State–the dignity of individual choice. …

The facts of this case illustrate this point with the utmost clarity.  Edwards wished to take a self-defense case to the jury.  His counsel preferred a defense that focused on lack of intent.  Having been denied the right to conduct his own defense, Edwards was convicted without having had the opportunity to present to a jury the grounds he believed supported his innocence.  I do not doubt that he likely would have been convicted anyway.  But to hold that a defendant may be deprived of the right to make legal arguments for acquittal simply because a state-selected agent has made a different argument on his behalf is, as Justice Felix Frankfurter wrote, to ‘imprison a man in his privileges and call it the Constitution.’  In singling out mentally ill defendants for this treatment, the Court’s opinion does not even have the questionable virtue of being politically correct.  At a time when all society is trying to mainstream the mentally impaired, the Court permits them to be deprived of a basic constitutional right–for their own good.

Good stuff. 

The liberal votes here are probably driven by their pursuit of a ‘just’ outcome – no matter what the constitutional text says.  Justice Kennedy recently joined the liberals in defense of habeas corpus and the conservatives in defense of the right to keep and bear arms.  One might have expected him to follow the text here as well – but he joined the majority.  Alas, he seems to pursue the ‘just’ outcome just like the liberals.  That Alito and Roberts would part company with Scalia and Thomas in a case like this shows once again their more statist bent.

For the full opinion in this case, Indiana v. Edwards, go here (pdf).

Tax Credits We Don’t Need, Tax Credits We Do … Maine #1

Yesterday I posted the first in a continuing series about tax credits we don’t need to illustrate how absurd it is that more politicians don’t support the one good kind of tax credit; education tax credits.

I noted that one of the more popular tax credits is for saving old buildings that some people don’t want torn down but don’t care enough about to save with their own money. So they subsidize the renovation with credits. Maine’s government likes their old buildings just as much as Ohio’s, so the legislature recently expanded the state building rehab credit:

A new law that makes up to $5 million available to developers willing to rehabilitate historic buildings in Maine drew a record crowd Tuesday, a bellwether of its potential to spur new life in old buildings, organizers said.

With an estimated 25 projects that could take advantage of the expanded credit, Maine is looking at somewhere around $100 million in credits for building rehab.

What most states don’t have are education tax credits – the one and only tax credit that makes fiscal sense because it really does save taxpayers’ money and the only tax credit that actually decreases market distortion rather than increasing it.

So, I have a question for Maine’s politicians; if it’s good to encourage developers to invest in building preservation, why isn’t it good to encourage all taxpayers to invest in education? Are developers and old buildings more important than a child’s future?

Will Representative Ted Koffman, Speaker Glenn Cummings, Senator Peggy Rotundo, and Governor John Baldacci, all of whom pushed hard for the building credit, come out in support of at least $100 million in tax credits for educating Maine’s children?

If not why not? Inquiring minds want to know …