On Privacy, and Control of Disclosure

http://www.economist.com/blogs/democracyinamerica/2013/06/surveillance-0

The problem isn’t so much that we haven’t set up a legal architecture to preserve our online privacy from the government; it’s that we haven’t set up a legal architecture to preserve our online privacy from anyone at all. If we don’t have laws and regulations that create meaningful zones of online privacy from corporations, the attempt to create online privacy from the government will be an absurdity.

I think that creating a narrative of “privacy” is confusing the issue. Privacy sounds like some abstract concept about remaining anonymous or something. The issue is not the disclosure of information but the control of the disclosure of information. When you tell your friend that you have diabetes, then some personal information about you has been disclosed. Has your privacy decreased? Well, yes, absolutely. But we are not trying to protect privacy only the control of the disclosure of information. So, when you send an email via Gmail or make a purchase at Target with your credit card, you are clearly sharing information with another individual or group of individuals. Your “privacy” was clearly diminished. But you had control over that. Even if Google tells you that they will mine that data and sell it to third-party advertisers, you chose to share that information with them. So, the question is not whether or not individuals should have privacy, but whether or not they should be forced to disclose information about themselves to parties that they choose not to. Should an individual be forced to disclose information to a party, like the NSA, unwillingly? Well, control of the disclosure of information is valuable property. Should that property be forcibly taken from an individual?

How valuable is this property? Well, it is worth billions of dollars. Consider just this example. The NSA program collects information on credit card transactions:

http://online.wsj.com/article/SB10001424127887324299104578529112289298922.html

But people familiar with the NSA’s operations said the initiative also encompasses…purchase information from credit-card providers.

Now consider how much money Google is spending to try and collect this same information:

http://www.businessweek.com/articles/2013-06-06/google-wallet-is-leaking-money

The company has dedicated hundreds of developers to Wallet and spent about $300 million to acquire digital payment startups to help develop the app.

For Google, the goal wasn’t to generate fee revenue from the transactions, as banks, PayPal (EBAY), and other companies do. The idea was to collect data on consumer habits and target ads to them. Google pays such high fees to the credit-card companies it works with, though, that it loses money on every transaction

Bedier, a former PayPal executive who joined Google in 2011, says the streamlining is a big shift and that he was encouraged to spend freely to develop Google Wallet.

Jason Gardner, the CEO of loyalty-card startup Marqeta, says brick-and-mortar payment information is too lucrative a possibility for Google to ignore. “The amount of data at the point of sale is so significant that they’re not going to throw in the towel,” he says.

So, Google is willing to spend hundreds of millions of dollars to entice people to disclose credit card purchase information. I would say that that property is pretty valuable. Politicians, appreciating value like everyone else, naturally want acquire this value.  Will we protect it? It doesn’t look like it.

http://marginalrevolution.com/marginalrevolution/2013/06/the-loss-of-privacy-and-the-collapse-of-creative-ambiguity.html

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.

This whole post was basically a complicated way of saying, “Unprotected property is lost.”

Suppose a homeowner witnesses a burglar sneaking out of his house holding his toaster. After some contemplation, he chooses not to put a lock on his front door. A few days later he is outraged to find his laptop stolen. What happened? The homeowner either:

  1. Thought that burglar was only interested in low-value items.
  2. Didn’t think that burglar knew that there were other valuable items in the house.
  3. Didn’t think that the burglar knew the value of the other items in his house like his laptop.
  4. Thought that the burglar was satiated with capturing only a little value.
  5. Didn’t value his laptop.
  6. Thought protecting his valuables was not worth the hassle of having to unlock his house when he got home.

We seem to not be attempting to put a lock on the tremendous value that we have in controlling the disclosure of information that we possess. For which of the above reasons?

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Just Give the People Their Money

It seems like just about every day I read an article about Apple’s cash hoard and what they should do with it. Yesterday they announced that they would be executing a stock buyback, or, put another way, require that just about everyone buy some AAPL stock at $400 or so. Seriously – when one considers mutual funds owning Apple stock, I would bet that just about everyone in the U.S. who owns any kind of company equity owns some.

http://finance.yahoo.com/blogs/breakout/apple-good-bad-rotten-115009507.html?vp=1

And how have the results been with Apple’s existing stock buyback?

Apple’s existing buyback program was launched October 1st of last year. Since then, the company has spent $1.95B buying shares at an average cost of $478. The stock has fallen more than 40% since the buyback went live and shares purchased have lost 15% of their value.

Wouldn’t it be nice if Apple would just give us our money in dividends, instead of “investing” it for us in Apple stock? I understand there are tax implications, etc, etc but when we buy Apple stock we fundamentally want the company to produce earnings for us. We shouldn’t be forced to re-invest those earnings in the company.

A New Long-Term Unemployed Entitlement?

The Atlantic published an article about the problem of long-term unemployed. Apparently there is something magical about being 6 months unemployed such that a person becomes almost unemployable from that point on.

http://m.theatlantic.com/business/archive/2013/04/the-terrifying-reality-of-long-term-unemployment/274957/

The author concludes with a policy prescription:

It’s time for the government to start hiring the long-term unemployed. Or, at the least, start giving employers tax incentives to hire the long-term unemployed. The worst possible outcome for all of us is if the long-term unemployed become unemployable. That would permanently reduce our productive capacity.

The government should start hiring the long-term unemployed – I’m trying to figure out if that is a serious proposal? The author leaves the implementation details up to the reader to imagine, so let’s imagine them:

What work will they do? Will these be fulfilling jobs? If not, why not? If so, who in the world would ever take an unfulfilling job in the private sector if all you have to do is wait 6 months and become entitled to a fulfilling job working for the government?

How long will the job last? Will it be short term or long term? If short term, it’s hard to see how that is going to “trick” private sector employers into looking at the participants’ resume again. Hiring manager thought process: “I see you were unemployed for 6 months, then employed by the government for 6 months, and now you’re unemployed again. Remind me: why am I more likely to hire you now?” If long term then how will we ever afford this, and why would anyone, once hired, ever look for work in the private sector or anywhere else?

How will the participants be selected? I can envision a couple of options:

1) Everyone gets hired – so this is a true, new entitlement. Anyone and everyone who is unemployed for more than 6 months gets hired by the government.

2) Political process – people unemployed greater than 6 months get hired according to who has a friend or family member working for the “Department of Long-Term Unemployed”. Although, if you had a friend working for such a department wouldn’t you have an in for one of our existing government jobs?

3) Merit-based process – the government will review the resumes and hire only the best and brightest of the long-term unemployed. Because I’m sure the government is better at picking out those diamonds in the rough than 6 months worth of private sector resume reviewers.

4) Lottery – random draw for government jobs! Woo hoo!

Note that (2), (3), and (4) don’t solve the problem which this program was initially designed to solve, which is “the long-term unemployed become unemployable [and] permanently reduce our productive capacity” – it just reduces the number by a few.

How will these new employees be organized? Will we set up a new organization in the government, with some hired as managers, and others worker bees? Will we hire one executive long term unemployed per one hundred worker bees? Or are we going to just randomly plug these people into existing government organizations? If there were a match with their skills to the mission of the organization they probably would have already been hired. The point was that we are hiring them as an entitlement so it doesn’t matter what their skills are at all.

I’m not questioning that employers discriminate against long-term unemployed, and agree that it is a problem for the macro economy, and especially for the individuals who cannot find work. However, starting a government program to hire the long-term unemployed is a not a solution.

Debt Won’t Save You If The Inflation Hits

One of the issues that people seem to bring up to me the most is inflation, particularly hyperinflation. When people see charts like this one that show a vastly increasing money supply they are rightly concerned. One possible course of action I hear a lot is something along the lines of “hey that’s why I’m going to take out a bunch of loans so I can pay them back with cheap dollars and I’ll be protected.” Not a bad concept, and indeed it will work for a few, but based on this story about inflation in Iran (from Greg Mankiw’s blog) it’s not something I would give a very good chance of actually working if/when the time comes:

http://m.theatlantic.com/magazine/archive/2013/04/my-hyperinflation-vacation/309263

As in all cases of runaway inflation, there are winners among the losers. Iranians with foresight and the ability to borrow have profited enormously from the past year’s inflation. Many Iranians complain, Salehi-Isfahani of Virginia Tech told me later, that only the most politically connected people get significant loans from banks, so there is an inherent iniquity in the ability to profit off severe inflation. It’s easy to see why credit is rationed in Iran: the interest rate facing borrowers is fixed at 21 percent, so an inflation rate of about 30 percent means an automatic real rate of return of nearly 10 percent, just for borrowing.

This dynamic, in which savvy borrowers win big while people on fixed incomes, like the old and the retired, lose their savings, reproduces exactly what we’ve seen in previous inflation episodes elsewhere. “Hyperinflation is among the most cruel forms of government expropriation,” William Masters says. “If the government says it’s going to take your farm away, at least there’s a kind of visible honesty to that.” If you bought a large farm in Zimbabwe in 2000 and had a 30-year fixed-rate mortgage, in 2008 you could have paid that mortgage off with the 10-million-Zimbabwean-dollar note framed in Masters’s office, and expected change back in the transaction. But if you’d been in the more common situation of eking out some small savings, over many years, you’d find that your industry and foresight had been nullified, your thin cushion of savings yanked from under you.

So if you’re hoping to employ a “take out big loans to win” strategy – good luck with that. You’re likely much better off with stable money.