That is the theme and title of my latest Bloomberg column.

Here is one proposal:

What if I told you that the credit rating companies already had a system to verify identities before opening new accounts — but, because this would be a minor inconvenience, and a drag on their profits, they only allow this status to last for 90 days for any given account unless a police report can be filed, and furthermore, while they may claim that they’ll do this, it’s not actually a legal requirement? From a Krebs on Security piece from 2015 (as ever, Krebs is two years ahead of the zeitgeist):

“With a fraud alert on your credit file, lenders or service providers should not grant credit in your name without first contacting you to obtain your approval — by phone or whatever other method you specify when you apply for the fraud alert … Fraud alerts only last for 90 days, although you can renew them as often as you like. More importantly, while lenders and service providers are supposed to seek and obtain your approval before granting credit in your name if you have a fraud alert on your file, they’re not legally required to do this.”

That’s right: a solution to the ongoing insane catastrophe which is the American credit system already exists. The infrastructure and process for it is already in place. But thanks to regulatory capture, an inability to understand the scale of data hacks that modern technology enables, or sheer incompetence, it only exists on a case-by-case, opt-in, short-term solution.

Obviously everybody should have this verification — “two-factor authentication,” if you will — turned on and kept on. This would not be a panacea, of course. Security hipsters will loudly protest that phones and email are terrible second authentication factors that no one should even consider using. Phone and email are not ideal, but the point is, universalizing this existing solution would hugely improve matters for a relatively trivial cost.

That is from Jon Evans.  I still would like to know what is the social cost of identity theft.  Furthermore, what is the cost of identity theft as a ratio of the cost of some people simply not paying borrowed money back?

Everyone is all a-flutter on this issue, and attacking Equifax, but I am looking for more reliable information before voicing an opinion.

The education culture that is China

by on September 15, 2017 at 1:46 am in Education, Web/Tech | Permalink

Students at a major university in Beijing are now required to scan their faces upon entering dormitory buildings, a process that may soon make security guards obsolete.

Beijing Normal University has installed 44 facial scanners on its 19 dormitory buildings, for the 18,000 students on campus.

It is the boldest move taken by a Chinese university so far to apply advanced digital technologies in campus management and has drawn attention from administrators at other universities.

The machines have been placed at all entrances to dorm buildings. Students entering the building will have to pause and look at the sensor for a few seconds. They are then required to swipe their campus ID card. If the face and card match, the machine will open the gate and say “welcome home.”

The machines also come with voice recognition. Students who forget to bring their ID cards can scan their face and say the last four digits of their card number, said Yang Hailiang, general manager of Beijing Peace and Joy Technology, which produces the machines.

The system can recognize 26 Chinese dialects and has achieved an accuracy rate of 98 percent, Yang said.

Here is the full article.

Parenting by Panopticon?

by on September 11, 2017 at 11:29 am in Education, Web/Tech | Permalink

The cameras record the families’ lives — conversations, arguments, every interaction. If something is amiss, Cognition Builders can provide instant direction on how to remedy the situation, either verbally through a microphone in the camera or by sending a text to the parent.

Jessica Yuppa, Cognition Builders’ director of curricula and assistant clinical director, said the Nest Cams give CB an “unfiltered look” at what goes on inside the home. “Families think they know about themselves, but they don’t. Cameras give us a beat-for-beat of interactions. If a parent is struggling to communicate with a child, for example, we can watch a conversation and say, ‘Okay, why do you think he looked away when you said this?’” Yuppa said it doesn’t take long for families to adapt to the scrutiny. “My experience is the self-consciousness goes away very quickly,” she said. “People live their lives and forget we’re there.”

…A new rule was thus established. When an adult comes into the room and says hello to one of the children, the child stops what he or she is doing, looks the adult in the eye, shakes his or her hand, returns the greeting, and asks the adult how he or she is doing. This became the new expectation. If any member of the household failed to meet this expectation, he would receive a strike.

…At the end of each day, Elizabeth and Jason would receive a detailed, many-paged report on everything the family architects had observed.

Here is the article by Kim Brooks.  Yikes!  Read the last paragraph.

The economics of Bitcoin mining

by on September 7, 2017 at 1:37 am in Economics, Web/Tech | Permalink

There is a new paper (pdf) by Huberman, Leshno, and Moallemi on that topic, I found it very useful.  Here is the abstract, non-newbies can skip ahead to the second paragraph:

Many crypto-currencies, Bitcoin being the most prominent, are reliable electronic payment systems that operate without a central, trusted authority. They are >enabled by blockchain technology, which deploys cryptographic tools and game theoretic incentives to create a two-sided platform. Profit maximizing computer servers called miners provide the infrastructure of the system. Its users can send payments anonymously and securely. Absent a central authority to control the system, the paper seeks to understand the operation of the system: How does the system raise revenue to pay for its infrastructure? How are usage fees determined? How much infrastructure is deployed?

A simplified economic model that captures the system’s properties answers these questions. Transaction fees and infrastructure level are determined in an equilibrium of a congestion queueing game derived from the system’s limited throughput. The system eliminates dead-weight loss from monopoly, but introduces other inefficiencies and requires congestion to raise revenue and fund infrastructure. We explore the future potential of such systems and provide design suggestions.

Recommended to many of those who are otherwise merely baffled.

That is the topic of my latest Bloomberg column.  Here is one bit:

Let’s say bottled water was selling at $42.96 a case at the local Best Buy, as shown in this photo. A customer can take out his or her smartphone, snap a photo and post it on social media. The photo may go viral, and many people, including the legal authorities, will be mad at the company.

The reluctance to raise prices is especially strong for nationally branded stores. A local merchant may not care much if people in Iowa are upset at his prices, but major companies will fear damage to their national reputations. The short-term return from selling the water at a higher price is dwarfed by the risk to their business prospects. More and more of the value of business capital is intangible capital, more than 84 percent of the S&P 500 by some estimates. That’s why Best Buy so quickly apologized for its store selling the water at such a high price, blaming the incident on an overzealous local manager.

Consider an alternative: Instead of raising prices to very high levels, let’s say that the local big-box store sells out quickly during an emergency and has empty shelves for water. If those photos circulate, they will be interpreted as signs of general tragedy and want, rather than selfish corporate behavior. It’s too subtle an image to snap the price tag at pre-storm levels, contrast it with the empty shelves, and lecture your Facebook friends about the workings of market-clearing supply and demand and the virtues of flexibly adjusting prices.

Beware the culture of the image!  As I’ve said before, we should levy a micro-tax on photos on Twitter.

Here is Don Boudreaux on price gouging.  Here is David Henderson on price gouging.  I agree with them both.

Try on these propositions for size:

1. Intangible-rich businesses are harder to fund with debt, because the lenders cannot take home much in the way of physical assets.

2. Intangible assets, because of their potentially scalable nature, can produce the kind of “home run” successes that VC investors look for.

3. Given that intangible investments are relatively uncertain, the idea of successive funding “rounds,” with successive evaluations at each stage, makes more sense in those cases, and that too matches the VC model.

4. Companies with lots of intangible assets try to take over markets that are “contested,” but note that leading VC firms behind these investments are heavily invested in the entire ecosystem.

5. If a good VC company is plugged into the right social networks, and investing in a highly productive ecosytem, it can reap high returns year after year, and from a relatively “within-sector” diversified position.  The VC companies can outperform the broader market, even if the VC leaders themselves would not be superior “stock pickers” in a mutual fund context.  That said, the VC leaders may not be well diversified across sectors, and so a systemic tech bust can hurt them.

6. Not everyone can build those social networks with equal facility, so VC advantages can endure for considerable periods of time for the leading firms.  It is the ability to “position socially and manage contestedness and spillovers and maintain the flow of good deals” that is so hard to scale up.

That is all from the forthcoming Capitalism Without Capital: The Rise of the Intangible Economy, by Jonathan Haskel and Stian Westlake.  Their discussion of venture capital offers further points of interest, including a discussion of why it is so hard to replicate VC environments in other settings.  Here is my previous post on the book.

Burger King launches WhopperCoin crypto-cash in Russia

That is from the BBC, sprightly throughout, via Stuart Harty.

Alex already has covered this topic.  I am less worried than he is, and I’ll go through a list, but first here are a few general remarks.

Most of the ban attempts seem directed at versions of alt right ideas.  Whether you like it or not, those ideas have benefited from the internet perhaps more than any other.  I am seeing a small amount of that gain clawed back, but in a manner consistent with principles of liberty and free association and probably Coasean efficiency as well.  The claim “the tech companies are way more open than the previous mainstream gatekeepers, but they have to spend more customer and employee goodwill to be all the more open yet” has some resonance with me, but I can’t say it is in the top 300 list of demands I wish to place on the world.  It might not be in the top 1000.

It remains the case that the most significant voluntary censorship issues occur every day in mainstream non-internet society, including what gets on TV, which books are promoted by major publishers, who can rent out the best physical venues, and what gets taught at Harvard or for that matter in high school.  In all of these areas, universal intellectual service was never a relevant ideal to begin with, and so it seems odd to me to pick on say Facebook.  It’s still not nearly as important an influence as the above-mentioned parts of non-internet society, nor is it anywhere close to being as discriminatory.

That all said, I am happy when I see people complain about voluntary censorship, even when I disagree with the complaints, or think the complainer is being too pessimistic.  Complaining > complacency.  That said, here is my wee dose of complacency, in the form of a list across various parts of the internet:

1. On-line dating services.  No fears here.  Christian, Jewish, and other dating services are already set up to include some groups and exclude others.  If OK Cupid excludes neo-Nazis, or supposed neo-Nazis, this seems entirely in order.

2. Amazon.  You can order Mein Kampf on Amazon, and few seem to complain about that.  Does it make sense to have a world where Hitler is available but Milo is banned?  Well, a lot doesn’t make sense these days, but still I don’t ever expect that to happen.  There are cultural and also business reasons why universal booksellers will be among the last to embrace voluntary censorship.

Can you order a swastika, of the evil kind, on Amazon?  It seems not.  Presumably that has been the case for a while, it doesn’t bug me, and I wouldn’t mind if Amazon selectively stopped carrying other political symbols as well.  I bet Wal-Mart doesn’t carry them either.

3. Facebook.  Here my worry quotient at least potentially rises, if only because Americans spend so much time on Facebook.  Let’s say Facebook bans some neo-Nazi groups and communications, and then goes too far and keeps off some groups that offer valuable intellectual contributions, even if their quality might be too “high variance.”

Yet here’s the thing: given my mixed feelings toward Facebook, I see this as OK either way.  If Facebook gets better, well, how bad can “better” be?  But say the Facebook censors overreact, some groups are booted off, and Facebook gets worse.  I don’t mind if Facebook gets worse!  People will spend more time doing other things.  And the unjustly banned group still have plenty of other outlets on the web.  We know from history that every medium encourages some kinds of ideas and discourages others (TV for instance seems to let people think crime rates are pretty high, because crimes get covered on the evening news).  Not long ago, there was no Facebook and those unjustly banned groups couldn’t get on the evening news either.  Maybe that was bad, but it was hardly the end of the world, and even with an overly aggressive Facebook censor we are still far closer to a kind of neutrality across ideas than was the case twenty years ago.

4. Google.  In China I found it very easy to switch to Bing, because Bing is a second or so quicker in China (that is using Google through VPN, otherwise you can’t).  Now maybe Bing bans the same web sites.  And maybe the lower-tier search engines are too crummy, or people are simply not used to using them.

On this issue I have modest fears.  Still, what I’ve seen so far is a Google (and Bing) that want to be as universal as possible, and the constraints as coming from the regulators, such as the EU “forgetting” policy.  Google covers so much material, I think of them as not wanting to devote many resources to adjudicating content.  At the very least, they still seem quite willing to take me to Amazon selling Mein Kampf.

I do expect news.google.com to become more mainstream over time, and indeed it already has.  They are more careful about what pops up on the page.  This too doesn’t bug me, it probably improves average quality, and furthermore it is still a more open forum than is the news on television.

Here you can read a long list of complaints against Google and affiliated services.  Given how much data the company handles, and how many cases arise, I’m amazed they’ve done so well.  Salil Mehta was just restored, by the way.

5. Twitter.  For many people it might be an advantage to be banned from Twitter.  Still, for some views Twitter is an important means of connecting with the audience, Donald Trump being the most prominent example.  So I have a bit of a worry, but I don’t see Twitter as that powerful in the world of ideas.  And overall I have a pretty fluid view of what is likely to matter.  I do not think it is impossible or even implausible that some really important ideas, twenty years from now, are circulated using fanzines, or perhaps something like the old usenet groups.  More generally, our ability as outsiders to judge the health and quality of an intellectual ecosystem just isn’t that great, so maybe we shouldn’t be so judgmental at each step along the way?

6. YouTube (owned by Google).  Due to copyright law, YouTube is already in the business of making plenty of judgments about content and it has the infrastructure to do so.  And unlike Google the search engine, content is posted directly on YouTube itself.  YouTube is a hosting service, not just a search engine, though it is that too.  YouTube search and recommendation algorithms drive a lot of views.  If YouTube won’t host your videos, that is a problem.

But I am not very worried about “YouTube as we know it.”  The forum seems to work quite well (no need to mention Jordan Peterson in the comments, his account was restored).  I am happy that gangs can’t post videos of their killings, and the biggest problem remains government censorship of YouTube.  If you google “banned from YouTube,” I do not see a long list of outrages, that said I would not have banned the Prager University videos.  Whether you like it or not, it is easy to watch Milo on YouTube, even though the publishing world dropped his book like a stone.  The tech companies still seem so much more open than the older media gatekeepers.

Cloudflare, and other internet choke point services: I worry about them a lot.  They can in essence kick you off the entire internet through a single human decision not to offer the right services.  I focus almost all of my worry on them, noting that so far all they have done is kick off one Nazi group.  Still, I think we should reexamine the overall architecture of the internet with this kind of censorship power in mind as a potential problem.  And note this: the main problem with those choke points probably has more to do with national security and the ease of wrecking social coordination, not censorship.  Still, this whole issue should receive much more attention and I certainly would consider serious changes to the status quo.

A bit more

I hope the tech companies do not go further with voluntary censorship, but I don’t think it is obvious that they will.  It seems they felt the need to do something, and now they are hoping the storm will pass.  I do favor vigilance against further overreach, but let’s not overrate the importance of what are so far largely symbolic disputes.

By the way, what’s the deal with the Left favoring net neutrality but wanting all this voluntary internet censorship?

Robo-Adviser Tries to Reach Muslim Investors (WSJ, on-line header differs)

And just to remind you this truly is 2017, here is another of today’s headlines (NYT):

France’s Macron Looks to Confront Eastern Europe Over Cheap Labor

Macron: overrated, as I’ve said from the beginning.  As for the robo-advisers, we’ll have to see.

Gab is an app similar to twitter but it has a more permissive speech policy. According to company spokesman Utsav Sanduja, “Whatever is permissible under the First Amendment is what Gab allows onto its site.” Gab has attracted some users from the alt-right and seemingly for this reason Gab has been banned by both Google and Apple. I wouldn’t go so far as Aaron Renn who argues that “Google and Apple have used their duopoly status to revoke the First Amendment on mobile phones” but I do find these actions troubling.

I have no problem with Twitter or Facebook policing their sites for content they find objectionable, such as pornography or hate speech, even though these are permitted under the First Amendment. A free market in news doesn’t mean that every newspaper must cover every story. A free market in news means free entry. But free entry is exactly what is now at stake. Gab was created, in part, to combat what was seen as Facebook’s bias against conservative news and views. If Gab or services like cannot be accessed via the big platforms that is a significant barrier to entry.

When Facebook and Twitter regulate what can be said on their platforms and Google and Apple regulate who can provide a platform, we have a big problem. It’s as if the NYTimes and the Washington Post were the only major newspapers and the government regulated who could own a printing press.

In a pure libertarian world, I’d be inclined to say that Google and Apple can also police whom they allow on their platforms. But we live in a world in which Google and Apple are bound up with and in some ways beholden to the government. I worry when a lot of news travels through a handful of choke points.

I also fear that Google and Apple haven’t thought very far down the game tree. One of the arguments for leaving the meta-platforms alone is that they are facially neutral with respect to content. But if Google and Apple are explicitly exercising their power over speech on moral and political grounds then they open themselves up to regulation. If code is law then don’t be surprised when the legislators demand to write the code.

These problems are arising in many fields not just news. As Politico noted, OKCupid has banned users accused of being white supremacists and asked members to report “people involved in hate groups.” AirBnb took it even one step further and “jettisoned the accounts of users it suspected of renting rooms to attendees of the “Unite the Right” event.” So it wasn’t even white supremacists who were banned but people who rented to them. What is next? Will white supremacists be banned from lunch counters? Sure, that prospect might generate a frisson of excitement but is that the kind of society we want to live in? And are we so sure that the tables will never turn again?

Addendum: By the way, LBRY, the censorship-free “blockchain meets youtube” startup (I am an adviser), is up and running in beta. Check it out!

Tim reaffirms his status as one of the great (greatest?) contemporary popular writers on economics, this time turning his attention to technology.  From a Smithsonian interview:

So what made you decide to write a book looking at the modern economy through specific inventions? 

I think it was a slight sense of frustration. I’m an economist, and economics often feels abstract and very impersonal, even though I don’t think it’s abstract or impersonal. As an economics writer, I’m also looking for a way to tell a good story and get some ideas across. I realized if I produced a kind of technological history with lots of ideas and examples I could teach some economics lessons through these very specific stories.

What’s your favorite invention in the book?

It varies, but right now it’s paper. I just loved the realization that there was an alternative to talking about the Gutenberg press. Obviously I have nothing but admiration for the Gutenberg press – it’s a tremendously important innovation. But everybody told me, ‘oh, you’ve doing fifty inventions that shaped the world, you must do the Gutenberg press.’ And I thought, ‘yeah, but it’s so obvious.’ Then I was looking at the Gutenberg Bible in the New York Public Library, and thinking, ‘this bible is printed on something. It’s not printed on nothing. It’s printed on a surface.’ It turns out that the Gutenberg press works perfectly well with parchment, technologically speaking, but economically speaking it doesn’t make any sense without paper. Parchment is just too expensive to produce a long print run. So as long as all you’re doing is handwriting bibles and making them look beautiful, there’s no need to use paper at all. But with paper you’ve got a mass-produced writing surface. It’s often the very cheap inventions that get overlooked, but nevertheless change the world.

Here is an adaptation from the book on the history of barbed wire.  Here is another BBC adaptation on why electricity did not change manufacturing more quickly.  You can pre-order the book here.

Yes the Chinese are ahead of us in many ways, here is one bit from an excellent article by Connie Chan:

#11 QR code as call box and information kiosk

Remember those emergency call boxes on the side of freeways? In Nanjing, China, smart street signs with QR codes provide the names and contact info for the local police. They also provide sightseeing guidance with directions, and information on how to handle a residence permit.


Since people in China believe that QR codes are here to stay, even tombstones are engraved with QR codes that memorialize the life-story — through biographies, photographs, and videos — of the deceased. From the leadership of the China Funeral Association: “In modern times, people should commemorate their deceased loved ones in modern ways”.

There is much more at the link.

The slope gets more slippery

by on August 18, 2017 at 12:45 am in Law, Music, Web/Tech | Permalink

Apple, LinkedIn, Spotify and Twitter have joined a growing chorus of technology companies to hit out at the far right and Donald Trump’s attempt to put white supremacists and leftwing counter-demonstrators at Saturday’s Charlottesville protest on the same moral plane.

Following the lead of Facebook’s Mark Zuckerberg, Google, Go Daddy and others, Apple CEO Tim Cook pledged $1m donations to the Southern Poverty Law Center (SPLC) and the Anti-Defamation League and sent a strongly worded memo to staff, quoting Martin Luther King, about the violence in Charlottesville on Saturday.

“We must not witness or permit such hate and bigotry in our country, and we must be unequivocal about it,” Cook wrote. “This is not about the left or the right, conservative or liberal. It is about human decency and morality.

Amid the ongoing fallout from the violence that saw a civil rights activist killed, music subscription service Spotify began removing so-called white power music, flagged by the SPLC as racist “hate bands”.

A Spotify spokesperson said: “Illegal content or material that favours hatred or incites violence against race, religion, sexuality or the like is not tolerated by us. Spotify takes immediate action to remove any such material as soon as it has been brought to our attention.

“We are glad to have been alerted to this content – and have already removed many of the bands identified, while urgently reviewing the remainder.”

What would Camille Paglia say?  Here is the article.  And here is a hate symbols database, to keep you on your toes.

Addendum: Some of you have given me grief over my posting of yesterday defending PayPal’s decision to stop serving some political groups.  I see it this way: giving PayPal its way passes a freedom of association test, and it also passes what I call a “first order Coasean test,” namely that Paypal and its affiliates wish to stop the relationship more than the cut off parties are willing to pay to maintain it.  Of course this development might have troublesome secondary consequences, due to slippery slopes, and also due to the spread of the practice to more monopolized sectors of the American economy.  Still, until major negative consequences emerge in verifiable and durable form…I am going to stick with the Coasean and freedom of association metrics for policy evaluation.  Should I have to deal with “extremist” groups if I don’t wish to?  No.  Is there a prima facie case for extending this same freedom to PayPal?  Yes.  But absolutely, I am all for vigilance to keep an eye on whether things start to go wrong in a big way.  And no, I don’t count all these “day after” reactions as nearly sufficient to establish that conclusion.

PayPal, the popular online payment platform, announced late Tuesday night that it would bar users from accepting donations to promote hate, violence and intolerance after revelations that the company played a key role in raising money for a white supremacist rally that turned deadly.

The company, in a lengthy blog post, outlined its long-standing policy of not allowing its services to be used to accept payments or donations to organizations that advocate racist views. PayPal singled out the Ku Klux Klan, white supremacist groups or Nazi groups — all three of whom were involved in last weekend’s Charlottesville rally.

“Intolerance can take on a range of on-line and off-line forms, across a wide array of content and language,” the company wrote. “It is with this backdrop that PayPal strives to navigate the balance between freedom of expression and open dialogue — and the limiting and closing of sites that accept payments or raise funds to promote hate, violence and intolerance.”

Here is the full Wonkblog article by Tracy Jan.

So far I see the backlash to recent events as very much harming the noxious elements behind the Charlottesville protests.  I wonder how many businesses — including those who do not supply essential services to such groups (or maybe not any services at all) — will move to make similar announcements.  I feel the country has reached a tipping point where businesses will not find neutrality across extremist or fringe or possibly violent groups a profitable or acceptable attitude in the public eye.  I applaud this move from PayPal, as I don’t think we are close to a “slippery slope” point where it becomes problematic to decide who should be banned from PayPal services and who not.  Nonetheless I do wonder what it will look like when American business gets to the more difficult cases of judgment.  Sooner or later, the ideological computational burden placed on businesses will rise considerably, as Twitter and Facebook and YouTube discovered not long ago, and are still struggling to deal with.  It will be a kind of mandate placed on business, but put there by public opinion and social media, rather than government.  I’ve yet to see a good, data-based research paper on that topic, but it seems that boycotts and refusal to deal are headed back into the public limelight.