The loss of privacy and the collapse of creative ambiguity

Remember the regime of creative ambiguity when it came to Fed bailouts?  You kind of expected one, but weren’t totally sure what might come, and so the banking sector felt safe but not absolutely guaranteed on the side of the creditors.  Post-Lehman, those days seem to be over and now the moral hazard problem looms larger.

Perhaps we had a regime of creative ambiguity when it came to privacy and government surveillance.  You (or at least I) thought the government was spying on you, but there was some ambiguity as to how much.  You could acquiesce to the previous status quo, without fearing it would get worse, because it was not commonly recognized public knowledge that so much spying was going on.  Maybe you figured you could tolerate a 0.8 probability of that level of spying because there were checks on it becoming worse, more extensive, more selective, and so on.

But now that previous level of spying is common knowledge (or at least part of it is common knowledge, I suspect there are further revelations to come).  At the same time, the IRS, Verizon, and other scandals are common knowledge too, all of a sudden.

The old equilibrium is perhaps no longer stable.  People may even be fine with that level of spying, if they think it means fewer successful terror attacks.  But if they acquiesce to the previous level of spying too openly, the level of spying on them will get worse.  Which they do not want.

On top of all that, the common knowledge of the old spying also may make the old spying less effective in purely practical terms, as potential suspects adjust their behavior.  That also may lead a risk-averse government to pursue additional and more intrusive means of spying.

So if the status quo of a few weeks ago is no longer an equilibrium, what happens next?

I predict we will see more spying and more intrusive spying.  You should not think that recent events will simply cement a previous status quo in place, rather it moves us down a very particular path and probably makes the entire problem worse.  The age of creative ambiguity in surveillance is over and probably not for the better.


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