Technology × Freedom

The Conundrum of Amazon

July 18, 2017 invisiblehand

I've written favorably of Amazon in the past, noting that it gets thrown a lot of shade simply for being big. But big - even monopoly-sized big - isn't necessarily bad if a company is merely edging out the competition through better prices and better service.

But this narrative doesn't sit well with me, because Amazon's core e-commerce business has barely scraped a profit in two decades. In a free-market system, companies that aren't profitable don't last, because shareholders and creditors will eventually pull out in pursuit of better returns elsewhere. And yet we have Amazon, the stock price of which continues to soar to unprecedented heights despite its negligible profits. This is the conundrum of Amazon.

A recent Tom Woods podcast, "Is Amazon Evil?", reminded me of this conundrum. The podcast itself, which defends Amazon against the typical complaints about promoting materialism, is good as far as it goes. But what really piqued my interest were some of the comments to the podcast. The common theme was this conundrum to which I've referred: is Amazon really a free-market, Internet-Age success story? Or does its online domination stem from less-than-free-market forces?

One commenter sums it up neatly:

I receive dozens of package shipments from Amazon each year. If I paid UPS or the USPS per package, I'd pay far more than my subscription fee. I own no shares, so the company's and its creditors' losses are my gains as a customer, but Amazon's business seems built on sand.

So why do Amazon's creditors continue lending?

Then I came across a link to this article, "The Amazon-ization of the Nation and Its Long-Term Consequences", in which David McAlvany and Kevin Orrick provide some much-needed insight into this conundrum:

Kevin: How does a mom and pop store compete against an Amazon who knows that the money is going to keep flowing from two directions? One is unlimited amounts of debt if they need it. The second is all of these indexed funds and the funds that are focusing on these FANG stocks going in and just buying stock and so it raises the capitalization of the company. I’m going to throw this out, Dave. What if the business that you run here, the company that we work for, really didn’t have to make money as long as you could get more debt and get the stock price continuing to rise?

David: Right, and then use the stock as it rises as a form of cash.

Kevin: It’s like the financialization of the economy.

David: That started to happen in the 1990s, and arguably, the late 1980s. But really began to catch fire after Glass-Steagall was done away with in 1999.

Glass-Steagall was enacted after the Great Depression to separate commercial and investment banking. On the topic of Glass-Steagall, Tho Bishop of the Mises Institute writes:

The existence of the Federal Reserve, the FDIC, and other state-backed institutions undermine market discipline in lending and create moral hazard. The 2008 crisis was a perfect example of how bank CEO’s benefitted with massive bonuses during the housing bubble while taxpayers ended up bailing them out when their government-subsidized behavior went bust.

As Frank Shostak wrote when defending Glass-Steagall: "As long as we have a central bank, it makes sense to impose tighter controls on banks in order to minimize the damage the central bank's policies inflict."

I hope you're beginning to see, as I am, the subtle thread that runs from a company like Amazon back to the central bank and its ex-nihilo credit creation. The Fed's easy-money policies have transformed capitalism into what Richard Duncan, in his book The Corruption of Capitalism, calls "debtism." Rather than a market based on real wealth (capital), we now have a market based on credit (debt). The economy has shifted from its heels to its toes, endlessly chasing credit and thereby deferring the debt burden to future generations. Of course, this can't last forever.

But it's not just the Federal Reserve that's playing the enabler. Another state entity - the United States Postal Service - is also doing its part. In a Wall Street Journal article published last week, Josh Sandbulte writes:

Like many close observers of the shipping business, I know a secret about the federal government’s relationship with Amazon: The U.S. Postal Service delivers the company’s boxes well below its own costs. Like an accelerant added to a fire, this subsidy is speeding up the collapse of traditional retailers in the U.S. and providing an unfair advantage for Amazon.

An April analysis from Citigroup estimates that if costs were fairly allocated, on average parcels would cost $1.46 more to deliver. It is as if every Amazon box comes with a dollar or two stapled to the packing slip — a gift card from Uncle Sam.

I'm not convinced a behemoth like Amazon would actually exist in a truly free market, nor would I call it a success of the Digital Age. I'm not advocating that Amazon is "evil" or that we ought to disavow its services. But Amazon, like other byproducts of the "debtist" economy, can only last as long as the system that's supporting it lasts. If Detroit, Illinois, and Puerto Rico are any indication, the debtist system can't last forever.

I won't even get into the details of Amazon's $600 million deal with the CIA to provide all 17 U.S. intelligence agencies with cloud computing services via AWS. That is a topic for another day.

McAfee Says Google "Removes Human Dignity"

July 17, 2017 invisiblehand

John McAfee on Google:

If you believe that Google is not harmful, then you must believe that the total loss of privacy and human dignity is not harmful. And please don’t get me wrong, I love Google from one standpoint; it has opened up the world to information beyond comprehension and has enriched our lives. But Google has taken the mantle of corporate conscience and sacrificed it on the altar of mammon – for money…. By making me a number, you’ve removed my human dignity. You’ve got to take that mantle back off the altar and put it back squarely on your shoulders.

Corruption and power does not come in a flash. It comes slowly. It creeps. As it creeps, the better instincts of the human animal are moved away by power itself, by money, by influence.

As I've said before, Google is only as powerful as the power we give it. But are we brave enough to quit Google?

Ethereum Mining Is Driving Up the Price of Graphics Cards

July 6, 2017 invisiblehand

Tom's Hardware reports:

You might have to wait to upgrade your graphics card. The increasing popularity of the Ethereum cryptocurrency has caused "miners," who essentially earn units of the cryptocurrency by having their GPUs solve complex math problems, to buy out many mid-range graphics cards. Prices are rising, supply is falling, and now companies like Asus want to appeal directly to miners with new graphics cards.

Now the price of many GTX 1060s on Newegg has risen above $400, even though many retailed for around $250 two weeks ago. Amazon seems to have sold out of many GTX 1060s–popular models are currently only available from third-party sellers instead of directly from Amazon or from the cards' manufacturers. This suggests that Amazon and OEMs have all sold through their current stock of GTX 1060s.

As our own analysis shows, Ethereum has seen a sharp increase in market cap and trading price this year. As of July 6, the price of Ether has risen more than 600% in the past three months.

The "Slippery Slope" of Internet Regulation Isn't a Fallacy, It's a Strategy

July 3, 2017 invisiblehand

The other day, I picked up a rare gem: a copy of Austrian-school economist Ludwig von Mises' collection of essays, Planning for Freedom. Mises was an ardent defender of capitalism, which in his time was increasingly out of vogue. A recurring theme in these essays is that there is no true "middle road" or "third way" between the two ends of the political-economic spectrum of socialism and capitalism. All policies that seek to improve or "tweak" the current system will lead away from capitalism and draw a nation toward socialism.

This isn't an accident. It's by design. It's written in the playbook of Marxism itself, codified and ingrained in the strategy of any socialist who has climbed the political and academic ranks. Mises identified this strategy clearly:

In the Communist Manifesto Marx and Engels designed a plan for the step-by-step transformation of capitalism into socialism. The proletarians should "win the battle of democracy" and thus raise themselves to the position of the ruling class. Then they should use their political supremacy to wrest, "by degrees," all capital from the bourgeoisie. Marx and Engels give rather detailed instructions for the various measures to be resorted to. It is unnecessary to quote in extenso their battle plan. Its diverse items are familiar to all Americans who have lived through the years of the New Deal and the Fair Deal. It is more important to remember that the fathers of Marxism themselves characterized the measures they recommended as "despotic inroads on the rights of property and the conditions of bourgeois production" and as "measures which appear economically insufficient and untenable, but which in the course of the movement outstrip themselves, necessitate further inroads upon the old social order, and are unavoidable as a means of entirely revolutionizing the mode of production."

There are many writers and tech leaders out there who advocate for regulating the internet in some form or another - whether it's regulating the telecom companies, censoring "hate speech" and "fake news" on social media, forbidding encryption, or calling for a publicly owned internet. They win their argument by appearing sensible, level-headed, and pragmatic, and by invoking the slippery slope fallacy against any opponent who claims these regulations will lead to 1984-style totalitarian socialism.

But if we take Mises seriously, the slippery slope argument is not only not a fallacy, but the very essence of the strategy of the left. Marxists and the later Fabian-style socialists understood that the masses couldn't simply be won over to Marxism as a theory. To succeed, they would have to push through, little by little, certain "practical" policies to address problems like unemployment and poor working conditions. These policies wouldn't directly attack the foundation of capitalism but would introduce a distortion to the market - a distortion that seemed to solve one problem but would, with time, cause a whole slew of new problems. But rather than seeing these new problems as a result of the original market distortion, the masses would be fooled by the academic/intellectual/media elites, who, with sophisticated-sounding arguments, would blame capitalism itself. In Mises' words:

As long as the syllogisms of these pseudo-philosophies retain their undeserved prestige, the average intellectual will go on blaming capitalism for all the disastrous effects of anti-capitalist schemes and devices.

This would pave the way for further "economically untenable" policies, and thus the destructive cycle would be set in motion to destroy capitalism and establish a government-planned economy, society, and (by extension) internet.

Few people today consider themselves to be Marxists or socialists. Most people, in fact, consider capitalism to be "pretty good" but in need of some central regulatory power to keep its flaws in check. But it is precisely by accepting neither socialism nor capitalism wholesale and instead believing in a mythical "middle road" that socialism will be able to achieve its own coronation. In politics, the slippery slope is not a fallacy, but a strategy. When it comes to internet freedom, you cannot be "pragmatic." You must choose sides, or the side will choose for you.

Waste Telemarketers’ Time (and Save Your Own) by Passing Them Off to a Robot

June 30, 2017 nitsuj

The FTC’s National Do Not Call Registry is quintessential government mediocrity. Registering a number is clunky, certain types of organizations are given a pass (like charities and political groups), and reporting a violation is a three page slog that can only be done through their website. No thanks.

Thankfully, creative entrepreneurs have filled the void with apps like Nomorobo and Mr. Number. The Sweet Setup has a good review comparing the different apps.

One particularly creative solution comes from Jolly Roger Telephone Company, which was highlighted on episode 937 of the Tom Woods Show. It’s not an app like the others, but a “robot” that you can pass telemarketers off to (either through teleconference or the “simultaneous ring” feature if your carrier supports it). The robot then carries on a very convincing conversation, wasting the telemarketer’s time and reducing the number of people they get to annoy that day.

As the cherry on top, conversations are recorded so you can repeatedly enjoy and share the hilarity that often ensues.

Facebook's Data Use Terms Don't Violate Anyone's Rights

June 30, 2017 invisiblehand

The context:

In a major victory for social-media users, the Supreme Court of Canada has given the go-ahead to a class-action lawsuit against Facebook over privacy rights – even though the company’s terms of use require all lawsuits to be filed in California.

The court, in a 4-3 ruling, stressed that in consumer contracts in which basic rights are at stake, social-media companies cannot simply demand that their users sign away their rights to be heard in Canadian courtrooms.

Deborah Douez of Vancouver launched the lawsuit in British Columbia on behalf of up to 1.8 million Facebook members in 2012, accusing the company of using her name and portrait without her consent in an advertisement known as “Sponsored Stories.”

Ms. Douez told The Globe and Mail that she was thrilled by her legal victory. “I think if we don’t start standing up for our privacy rights, we’re going to lose them.”

Under British Columbia's Privacy Act, companies can be held liable for using the names or pictures of customers without their consent. Of course, Ms. Douez gave her consent when she signed up for Facebook. But, says Michael Geist, that doesn't matter because:

Last week’s ruling rightly recognizes the dangers of uneven bargaining power in online contracts and the reality that consumers regularly click away their rights.

Good luck defining "uneven bargaining power" in a court of law. But the real issue isn't Facebook's terms of service. It's mistaking privacy for a right. Facebook's data use terms don't violate anyone's privacy rights because privacy isn't a right.

Rights only exist as far as there is ownership. You own your own body. Thus, no one can physically harm or enslave you if you haven't first harmed or enslaved them. This is everyone's right. These same rights apply to everything you own. But you can’t “own” your privacy any more than you can own your name, or own an idea, or own the exclusive right to look at something.

But suppose, for the sake of argument, that privacy really is a right. There’s still no guarantee that your privacy rights will be enforced, or that they will be restored once violated. If someone steals your car, you may never get your car back, even though you pay taxes to fund a government that enacts laws about theft and pays policemen and investigators and judges and prison guards to carry out those laws. Preserving your rights requires resources, and resources cost money. Just as declaring health care a right doesn't magically make health care free, likewise, declaring privacy a right doesn't make it free. Making data privacy a federal or state law doesn't mean you now enjoy data privacy for free - it just means companies are now bearing the financial burden for it. It also means you’re paying the government (and making everyone else pay the government) to enforce your data privacy instead of some privately operated service.

As a consumer, I take issue with companies like Google and Facebook for all their fine-print and terms-of-service games, and with their data practices in general. But I'd rather preserve my "right" to privacy through voluntary means than forcing everyone to pay for and adhere to my privacy values through a monopolist government.

Google Antitrust Decision More Evidence That European Bureaucrats Don’t Know (or Care) What Consumers Want

June 28, 2017 nitsuj

Yesterday, the European Commission (EC) announced a record $2.7 billion fine against Alphabet, alleging that Google violated antitrust law by “abus[ing] its market dominance as a search engine by giving an illegal advantage to another Google product, its comparison shopping service.” As with their decision to outlaw cellular roaming fees, however, the EC’s action again shows their clear disregard for what consumers actually want.

This disregard starts with how the E.U. differs from the U.S. in how it determines violations of antitrust law. As Ben Thompson explains in his thoughtful take on the judgment:

The United States and European Union have, at least since the Reagan Administration, differed on this point: the U.S. is primarily concerned with consumer welfare, and the primary proxy is price. In other words, as long as prices do not increase — or even better, decrease — there is, by definition, no illegal behavior.

The European Commission, on the other hand, is explicitly focused on competition: monopolistic behavior is presumed to be illegal if it restricts competitors which, in the theoretical long run, hurts consumers by restricting innovation.

As TechFreedom’s Berin Szóka points out, this way of thinking leads to the protection of less successful companies from more successful ones. It’s not about protecting consumers, as "[t]he EC doesn’t say a word about consumers. It simply claims that Google has hurt its rivals, who will now reap a windfall from this fine."

Thompson continues this argument:

On the other hand, isn’t consumer welfare the entire point? Sure, a narrow focus on price is perhaps a bad proxy, but if dominant services are winning by being better — which is my argument in Aggregation Theory — why should regulators busy themselves with demanding worse alternatives be given the right to succeed?

This is a point where many of those focused on the antitrust ends go wrong: in their crusade against big companies, they fail to grapple with the reality that on the Internet being big comes from being the best, leaving their arguments vulnerable to the critique that they are, in fact, anti-consumer, or at a minimum, anti-competence. To put it another way, in contrast to the previous point, regulators are treating people like dummies, assuming they can’t figure out how to find a competitive service, when in fact the truth is they don’t want to.

Then there’s the question of what Google should return when a specific product is searched for, if not ads and results pertaining to the specific product. Thompson makes two great points on this front:

First, if I search for a specific product, why would I not want to be shown that specific product? It frankly seems bizarre to argue that I would prefer to see links to shopping comparison sites; if that is what I wanted I would search for “Shopping Comparison Sites”, a request that Google is more than happy to fulfill.

The European Commission is effectively arguing that Google is wrong by virtue of fulfilling my search request explicitly; apparently they should read my mind and serve up an answer (a shopping comparison site) that is in fact different from what I am requesting (a product)?

The second reason is even more problematic: “Google Shopping” is not actual a search product; it is an ad placement.

You can certainly argue that the tiny “Sponsored” label is bordering on dishonesty, but the fact remains that Google is being explicit about the fact that Google Shopping is a glorified ad unit. Does the European Commission honestly have a problem with that? The entire point of search advertising is to have the opportunity to put a result that might not otherwise rank in front of a user who has demonstrated intent.

The implications of saying this is monopolistic behavior goes to the very heart of Google’s business model: should Google not be allowed to sell advertising against search results for fear that it is ruining competition? Take travel sites: why shouldn’t Priceline sue Google for featuring ads for hotel booking sites above its own results? Why should Google be able to make any money at all?

Even if you believe Google is a monopoly that has engaged in anticompetitive behavior in the past – as Thompson does – there’s little in this decision by the EC that can be celebrated as a win for the people of Europe. But perhaps believing the EC or E.U. actually exists to benefit them is an assumption worth questioning.

European Bureaucrats Don't Know (or Care) What Consumers Want

June 28, 2017 invisiblehand

Big news: Europeans no longer have to pay cellular roaming fees when traveling across EU member states. TechCrunch reports:

The European Council yesterday adopted the legal act that limits how much mobile operators can charge each other — the final step in the multi-stage, multi-year process for the region’s lawmakers to agree an end to roaming charges for citizens. The ‘roam like at home’ policy will come into affect across the European Union from June 15.

Sounds wonderful, doesn't it? Nobody likes those pesky roaming fees, after all. We all know they're just another way for telecom providers to gouge us, right? Good thing the European Council stepped in to put a stop to this roaming fee nonsense! In fact, the EU is calling this "one of the greatest and most tangible successes of the EU."

But behind all the self-congratulation and media fanfare is a somewhat different story. The New York Times scratches the surface of it in the aptly headlined article, "Cellphone Roaming Charges End in Europe. Many Respond With a Yawn.":

Ms. Krastanova, 37, prefers to vacation in her native Bulgaria when she is not selling newspapers in Sofia, the country’s capital. Ms. Krastanova says she is too busy — and many of her compatriots too poor — to travel elsewhere in Europe.

“Paying the bills and providing for my 4-year-old daughter is our main priority. There is little left to splurge on trips abroad,” Ms. Krastanova said as she cross-stitched an elaborate pattern and sat in her newspaper kiosk, a cup of coffee and a pack of cigarettes resting next to her embroidery. “I don’t use roaming.”

Nor do many of her fellow Europeans. Almost two-thirds of Bulgarians have never traveled outside of their country’s borders, according to European Union statistics, and in another eight European states, including Greece and Italy, at least half of people polled also had not spent time abroad. And though other Europeans do jet across the Continent, many of those journeys also are limited to two-week summer vacations or short business trips.

The landmark policy shift, which enters into force on Thursday, comes as Europe faces pressure to speed up the overhaul of its wider digital economy to keep pace with the likes of the United States and China. But the experience of Ms. Krastanova, and many others like her, has many wondering why the region’s policy makers took 10 years — and invested significant political capital — to end roaming charges when it is not a daily concern for many of Europe’s 500 million citizens.

So most Europeans didn't actually care that much about roaming fees. But at least the telecom companies won't be able to gouge its customers for that evil thing called profit. Oh, but actually:

The biggest concern has been that the measure will push up the price of standard mobile contracts — meaning mobile users would be paying more domestically to subsidize the cost of cheaper calls and data when they’re on holiday. (Indeed, some EU operators took early opportunistic action to raise prices — blaming the incoming measure.)

Ms. Krastonova - trying to make ends meet for her and her 4-year-old daughter - will in all likelihood end up with a higher phone bill in order to keep costs down for those who travel frequently for business - people who, let's face it, are probably more well-off than Ms. Krastanova and can write off roaming fees as a business expense anyway. The poor subsidizing the rich: this is one of the EU's "greatest successes." Bravo.

If the "roam like at home" policy won't help most of Europe's working classes, and in fact may actually hurt them, why did the EU make this initiative a priority? For one thing, it's good PR. Ending roaming fees certainly sounds good on paper. But there's a deeper reason, about which the EU is perfectly transparent:

The European Commission first set out its intention to end mobile roaming fees in a 2013 reform plan, called the Telecoms Single Market initiative — a part of the DSM [Digital Single Market], so also aimed at boosting the region’s global competitiveness and fostering digital jobs by reducing market fragmentation.

From the horse's mouth:

The Union is fragmented into distinct national markets and as a result Europe is losing out on a major source of potential growth.

What is the EU's ultimate goal, and, by extension, the goal of its Digital Single Market initiative? To erase national borders and create a single European nation. Of course, such an achievement would be disastrous. How could anyone effectively govern people groups and cultures as diverse and geographically distant as France, Poland, Romania, Portugal, Ireland, and the Czech Republic? We're already seeing the deep social tensions forming in the US as a result of a federal government attempting to legislate for California the same way it does for Texas, Montana, and New Hampshire - and trying to subsidize some at the expense of others. The European project will end as badly, or worse.

But hey, at least Europeans no longer have to pay roaming fees.

Sci-Hub Case Shows That Copyright Law Is Just a Power Game

June 26, 2017 invisiblehand

Ars Technica reports:

The operator of a searchable piracy site for scientific research papers has been ordered to pay $15 million as fallout from a US copyright infringement lawsuit brought by one of the world's leading scientific publishers, New York-based Elsevier.

The site in question is Sci-Hub, created by Russian-born Alexandra Elbakyan. The plaintiff in the case, Elsevier, claimed Sci-Hub infringes on its subscription-based journal database, ScienceDirect, which is "home to almost one-quarter of the world's peer-reviewed, full-text scientific, technical, and medical content." Based on the 2017 subscription price list, buying subscriptions for all of the journals offered would cost you over $300,000 per year. So a full quarter of the world's latest research is protected by a massive paywall thanks to copyright law.

The punch line to this joke is the response of Maria Pallante, president of the Association of American Publishers (AAP):

As the final judgment shows, the Court has not mistaken illegal activity for a public good. On the contrary, it has recognized the defendants’ operation for the flagrant and sweeping infringement that it really is and affirmed the critical role of copyright law in furthering scientific research and the public interest.

No, the court hasn't mistaken illegal activity for a public good. On the contrary, it has mistaken a public good for an illegal activity! After all, Sci-Hub is only "illegal" because legislators have arbitrarily decided it is. There is no law of nature or rational thought process that would lead us to believe that sharing a non-scarce resource - knowledge - should be punished. The only arguments in favor of intellectual property law are utilitarian. Thus Pallante's claim that copyright law somehow "furthers" scientific research and public interest. But when has restricting the flow of information ever been beneficial for science? How has keeping information hidden ever served the public good?

In fact, the opposite is true. IP lawyer Stephan Kinsella writes:

Material progress is made precisely because information is not scarce. It can be infinitely multiplied, learned, taught, and built on. The more patterns, recipes, and causal laws that are known, the greater the wealth multiplier as individuals engage in ever-more efficient and productive actions. It is good that ideas are infinitely reproducible. There is no need to impose artificial scarcity on ideas to make them more like physical resources, which — unfortunately — are scarce. As Frédéric Bastiat observed, “All innovation goes through three stages. One possesses unique knowledge and profits from it. Others imitate and share profits. Finally, the knowledge is widely shared and no longer profitable on its own which thereby inspires new knowledge.”

Kinsella has documented all of the harm that IP law has caused society and the economy, so even on utiliarian grounds the pro-copyright camp loses the argument. But don't think that reason and facts will stop the state from keeping the IP racket going and continuing to bestow privileges on special interest groups (like the AAP) while pocketing a pretty penny in administrative costs for itself. Because in the end, copyright law isn't about justice or fairness. It's about money and power.

Uber Is Changing Because of Pressure

June 26, 2017 nitsuj

David Heinemeier Hansson, writing at Signal v. Noise:

The important thing to note here is that we don’t actually need Uber’s board to have an ethical epiphany for things to get better. Do you think that United’s CEO suddenly came to realize the prudence of treating his passengers with a modicum of respect because he saw the light? Come on. United, like Uber hopefully will, changed its policies because they felt no choice.

This is how we improve matters. Once the survival of a company, or at least its reputation, hangs in the balance, all sorts of impossible things suddenly become possible.

Pressure works. Every drip counts. Be a drop.

I harp on this a lot, but for good reason: many people believe government is the only way to keep businesses in line. This is not only untrue, but acutely harmful. Especially when there’s a better way that doesn’t require centralization of power, endless regulation, uncapped spending, or really anything other than what we already have: our ability to choose the businesses we support with our money.

Does it matter that Uber (or any business) only changes because of money, and not some “ethical epiphany”? Not really. I go out of my way to support certain businesses that share my worldview, but oftentimes it doesn’t matter how they’ve gotten to the place of offering a service I want. As long as it meets my standards for price, quality, convenience, sustainability – whatever is important to me in the decision-making process – I’m happy. And that’s a standard everyone can tailor precisely to their own wants and desires.

Google to Stop Scanning Gmail for Ads

June 23, 2017 nitsuj

Mark Bergen, writing for Bloomberg:

Google is stopping one of the most controversial advertising formats: ads inside Gmail that scan users’ email contents. The decision didn’t come from Google’s ad team, but from its cloud unit, which is angling to sign up more corporate customers.

Alphabet Inc.’s Google Cloud sells a package of office software, called G Suite, that competes with market leader Microsoft Corp. Paying Gmail users never received the email-scanning ads like the free version of the program, but some business customers were confused by the distinction and its privacy implications, said Diane Greene, Google’s senior vice president of cloud. “What we’re going to do is make it unambiguous,” she said.

I have no doubt that this idea originated in the Google Cloud team’s discussions around selling G Suite to the enterprise. But it ultimately would not have been made if scanning Gmail still provided its ad business with worthwhile data. They likely get much more targetable data from other sources, such as search and browsing history. At this point, the potential revenue from selling more G Suite outweighs any loss on the ads side from not scanning Gmail.

It would be easy to write this off as Google once again trying to appear concerned about privacy when they really don’t. But even if they don’t, what matters is these enterprise customers do care enough to withhold their money (even through confusion). When the choice comes down to losing customers or meeting their demands, it’s not a hard decision.

Ron Paul Speaks with Edward Snowden on Surveillance, Privacy, and More

June 23, 2017 nitsuj

Quoting Snowden from the transcript, courtesy of Zero Hedge:

People have said recently that privacy is what we used to call liberty, and then in the same breath they say that privacy is dead. What liberty is…is the right to self-determination. It’s the ability to have something that’s yours, rather than society’s.

This is codefied into our language, when we talk about private property, we’re talking about your right, your ability to have something that belongs to you. You decide how it’s going to be handled, you decide what color you want to paint your house, you decide what color shirt you’re going to wear - you don’t have to ask anyone.

Liberty is freedom from permission. It is the fountainhead from which all other rights spring.

Saying that you don’t care about privacy because you have nothing to hide is the same as saying you don’t care about free speech because you have nothing to say.

The Digital Revolution "Will Create an Epic Conflict"

June 23, 2017 invisiblehand

Adam Thierer reminds us of two decisions made 20 years ago this summer that allowed the Internet to become what it is today. First, the Supreme Court's Reno v. ACLU decision on June 26, 2017, which "struck down the Communications Decency Act’s provisions seeking to regulate online content under the old broadcast media standard." Second, the Clinton Administration's Framework for Global Electronic Commerce, released in July 1997, which "rejected a restrictive regulatory regime for commercial activities and instead recommended reliance on civil society, contractual negotiations, voluntary agreements, and industry self-regulation."

Thierer tempers his celebration with a word of caution:

Online platforms and digital technologies continue to come under attack from regulatory activists both here and abroad. Many governments continue to push back against these online speech and commercial freedoms, meaning we’ll need to redouble our efforts to highlight and defend the benefits of preserving these important victories.

Finally, as the underlying drivers of the Digital Revolution continue to spread into other segments of the economy, these freedoms will come into conflict with older top-down regulatory regimes for automobiles, aviation, medical technology, finance, and much more. This will create an epic conflict of governance visions between the Internet’s permissionless innovation model versus the precautionary, command-and-control regulatory regimes of the industrial age. We already see tension at work in policy deliberations over the Internet of Things, “big data,” driverless cars, commercial drones, robotics, artificial intelligence, 3D printing, virtual reality, the sharing economy, and others.

Bitcoin's Scaling Debate Is a Fascinating Exercise in Game Theory

June 22, 2017 invisiblehand

If you follow Bitcoin news, you know that the years-long scaling debate is quickly coming to a head with Sergio Lerner's recent SegWit2x proposal and the subsequent New York Agreement. But for the merely casual onlooker, all of the technical jargin about block size, coinbase strings, and user-activated soft forks can leave you feeling a little lost.

The thing to understand, as Erik Vorhees eloquently explains, is this:

…the unfortunate context in which [the scaling debate] is occurring is one of diminishing utility on the platform: transactions are getting more expensive and less reliable. The user experience of sending a Bitcoin transaction today is worse than it was two years ago. While the price has risen, fundamental utility has actually declined. This is unsustainable, and will be inevitably resolved by utility once again rising, or price declining to meet it.

In other words, everyone in the Bitcoin community has a vested interest in achieving scale so that a key value proposition or "utility" of the cryptocurrency - easy, secure transaction - doesn't get destroyed by the increasing cost of that transaction (because of finite network capacity and miner fees).

But despite everyone having skin in the game, finding a solution to the scaling problem hasn't been easy. It's certainly possible the whole Bitcoin experiment could go down in flames. You can think of it like a business, where everyone from the lowest employee to the chairman of the board is a stakeholder in the company's success. Yet businesses fail all the time due to poor management, lack of accountability, infighting, employee sabotage, and so on. This is why companies and thought leaders have become obsessed in recent years with the concept of alternative organizational models and "Enterprise 2.0," as they realize that the traditional, bureaucratic-hierarchical model that has dominated the past century no longer works in today's "flat" technological world.

So even if you don't understand the finer points of the SegWit2x proposal, you can appreciate it on a higher level as a fascinating case study in alternative organizational models and begin to think about how the Bitcoin model might be applied to - or even replace - current forms of government. Bitcoin developer Jimmy Song has written about how the bitcoin ecosystem is like the three branches of government, with developers being the legislative branch, miners being the executive branch, and users being the judicial branch. In a recent CoinDesk article, he also touched on its parallels with the democratic voting process:

While scaling is the reason everyone claims for this conflict, the actual reason may lie higher up. And when you think about the actual consensus process that's required to change bitcoin, it's clear that both sides want more control than they currently have…. This has brought us to the current impasse. Both sides want control, but given that bitcoin is a consensus-based system, there's no way to give each side what it wants and keep bitcoin on a single chain.

This sounds eerily similar to the current right-versus-left political gridlock in America, with both sides wanting to grab the power apparatus in Washington in order to force their vision of the future on the rest of the country. This is what inevitably happens in a democratic government. But the Bitcoin community is not a democracy, and the concensus approach to making coding changes to the blockchain protocol doesn't force everyone to accept the outcome - instead, it creates a "hard fork" where the minority are cut off from the main chain (Bitcoin Core, in this case) and must form a new chain. Whether this is a good or bad thing will depend on what side you're on and whether you're a miner, user, or investor. But it certainly offers the greatest amount of freedom. And when we talk about government, freedom is the only legitimate goal.

Now For a Bit of Game Theory

Courtesy of Wikipedia:

In economics and game theory, a participant is considered to have superrationality if they have perfect rationality (and thus maximize their own utility) but assume that all other players are superrational too and that a superrational individual will always come up with the same strategy as any other superrational thinker when facing the same problem. Applying this definition, a superrational player playing against a superrational opponent in a prisoner's dilemma will cooperate while a rationally self-interested player would defect.

Remember that in the prisoner's dilemma (where neither player can know the other's decision ahead of time), if both players cooperate, they both get a medium benefit. If both players betray or "defect," they both get a small benefit. If one of them cooperates and the other defects, the cooperator gets no benefit and the defector gets a big benefit. The problem, of course, is that because of the phenomenon of loss aversion, both players will always defect. Might this explain America's political gridlock?

But if superrationality is possible, the cycle of defection can be broken. If everyone in the Bitcoin community were superrational, they would all come to the same scaling solution and would all cooperate to make that solution happen. The question is, how do you promote superrationality?

One way that occurs to me is to allow for multiple prisoner's dilemma scenarios, like different blackjack tables in a casino, and allow participants to move from table to table. Eventually, the superrational players will all find one another and stick together, and all the defectors will be left to themselves. Once the defectors see the superrational players enjoying better returns, they'll be incentivized to join the superrational table. It will never be a perfect system, but it will be a system where the defectors are continually weeded out.

It would follow, then, that the best form of government is a sort of loose confederation of states or municipalities, with relatively easy movement across the municipalities. Think of the Swiss canton model, except without a state-controlled monetary system. As part of the confederation pact, municipal governments could only have a voluntary tax system using, for instance, Dominant Assurance Contracts. People who were unhappy with the number of non-cooperators in their municipality or who disagreed with the concensus vision could vote with their feet. In a word, the best government is radically decentralized.

As we watch the Bitcoin community wrestle through the tough questions and growing pains of a decentralized organizational model, I can't help but wonder if we're failing to see the broader lessons than can be learned and applied to our broken political system.

Cell Phones in 1947? Nope, Said Government

June 21, 2017 nitsuj

In considering whether the internet would exist without government funding, I concluded that not only would it likely still exist, but it really succeeded despite the government keeping it restricted for 26 years.

The internet wasn’t the only technology stunted by government involvement, however. As Thomas Winslow Hazlett explains in an article for Reason, the cell phone suffered the same fate at the hands of the FCC:

When AT&T wanted to start developing cellular in 1947, the FCC rejected the idea, believing that spectrum could be best used by other services that were not "in the nature of convenience or luxury." This view—that this would be a niche service for a tiny user base—persisted well into the 1980s. "Land mobile," the generic category that covered cellular, was far down on the FCC's list of priorities. In 1949, it was assigned just 4.7 percent of the spectrum in the relevant range. Broadcast TV was allotted 59.2 percent, and government uses got one-quarter.

Television broadcasting had become the FCC's mission, and land mobile was a lark. Yet Americans could have enjoyed all the broadcasts they would watch in, say, 1960 and had cellular phone service too. Instead, TV was allocated far more bandwidth than it ever used, with enormous deserts of vacant television assignments—a vast wasteland, if you will—blocking mobile wireless for more than a generation.

This is no surprise, as the FCC and government at-large don’t operate with market forces pushing them to be efficient or even successful. Instead, they prioritize specific industries and corporations, protected their interests and balance sheets from competition.

Is Minitel a Case Study for Net Neutrality? Not Quite.

June 20, 2017 invisiblehand

The Atlantic has published a curious love letter of sorts to the French state-run "internet" of the 1980s known as Minitel. A basic introduction:

Minitel was a computer terminal. It housed a screen, a keyboard, and a modem—but not a microprocessor. Instead of computing on its own, Minitel connected to remote services via uplink, like a 1960s mainframe or a modern Google Chromebook. Terminals were given out, for free, to every French telephone subscriber by the state (which also ran the phone company).

Minitel was a huge success. With free terminals at home or work, people in France could connect to more than 25,000 online services long before the world wide web had even been invented. Many services of the dotcom-and-app eras had precursors in 1980s France. With a Minitel, one could read the news, engage in multi-player interactive gaming, grocery shop for same-day delivery, submit natural language requests like “reserve theater tickets in Paris,” purchase said tickets using a credit card, remotely control thermostats and other home appliances, manage a bank account, chat, and date.

Why is The Atlantic's Julien Mailland so enamored of this now-defunct technology? Because it was "open," of course. Since it was run by the government, all content and services were treated equally. We can all take a lesson from this, Mailland insists:

…Minitel’s lessons live on, and with new relevance. In the U.S., the Federal Communications Commission’s Open Internet Order made network neutrality law in 2015. But this year, it has come under attack by both cable internet operators and the current FCC chairman. The American implementation of a network derived from Minitel [known as 101 Online] was done by private industry alone. It failed in part because its usage was not regulated by the government. For this reason, it offers a view from the past on why the FCC’s move today might be misguided. It turns out that regulated networks might offer better market opportunities.

But was Minitel really a "huge success"? It helps to have some context, courtesy of Time:

In a nation that had a mere 5 million telephones in the mid-’70s — and where enduring the long wait to have a line installed was no guarantee it would actually work — the Minitel was an iconic part of France’s successful transformation from an underdeveloped communications and information-technology country into a cutting-edge innovator. To speed up that evolution, France Telecom handed out millions of Minitel terminals to businesses and households for free to use over an upgraded and expanded telephonic grid.

France had enjoyed the fruits of a nationalized telecommunications service since 1889, fruits such as long installation wait lists and shoddy service. More than eight decades of this government-run telecom service had left France technologically backwards. To improve its PR, France Telecom created Minitel (on the taxpayer's dime) and gave away millions of computers "for free" (again, on the taxpayer's dime). France still had horrible phone service, but nevermind that, they now had instant access to sex chat rooms where men could talk dirty to other men posing as women. I'm sure the droves of social conservatives out in France's vast countrysides loved having their tax dollars go to such a worthy cause.

Minitel was a "success" because it used taxes to provide a service half the country didn't want, essentially sticking a novelty cherry on top of the rotting cake of government-run telecom service. The sheen of this cherry rubbed off fast, as the rest of the world leapfrogged right over France a mere 10 years later with the advent of the privately-run, unregulated World Wide Web.

But rather than make the obvious comparison between Minitel and today's web, Mailland sidesteps the issue by comparing Minitel to 101 Online - Silicon Valley's early attempt at adopting Minitel. Mailland writes:

Individuals and companies couldn’t plug into the [101 Online] network and sell their content, goods, and services like their French counterparts had done, and as dotcom startups would soon do on the web [emphasis added]. Instead, they had to travel to 101 Online’s office in downtown San Francisco, hand a floppy to an operator, and wait for its content to be converted to 101 Online’s proprietary format and uploaded to the company’s server.

101 Online failed because of poor entrepreneurship and a bad business model, which the free market swiftly killed in favor of a better model, as Mailland himself notes. After meandering through this obscure history of failed internet prototypes, Mailland fails to tie it back to the question of an open internet. What Minitel or 101 Online has to do with net neutrality rules is anyone's guess.

What can we learn from articles like this one? Simply this: Advocates of net neutrality have to actively ignore obvious facts and rely on obscure examples to justify their position. To everyone else, the superiority of the private sector over the public sector in meeting people's needs is obvious, and it requires no special contortions of evidence or logic.

The Government Doesn't Fear WikiLeaks, It Fears You

June 16, 2017 invisiblehand

Courtesy of Merriam-Webster:

State \ˈstāt\ a politically organized body of people usually occupying a definite territory

Nationality \ˌna-shə-ˈna-lə-tē\ a people having a common origin, tradition, and language

A nation arises from the self-identifcation of its people with one another. From where does the state arise? The dictionary definition gives us no actor performing the action. We come upon it in medias res, as it were: it is somehow already "politically organized." But by whom? For what reason?

Keep this distinction in mind as you read the following from the EFF on the troubling origins of the 1917 Espionage Act:

On September 25, 1919, the 28th President of the United States Woodrow Wilson gave his final address in support of the League of Nations in Pueblo, CO and in his speech, he spoke of American immigrants with hyphenated nationalities: “Any man who carries a hyphen around with him carries a dagger that he is ready to plunge into the vitals of this Republic whenever he gets ready.” Wilson specifically targeted Irish-Americans and German-Americans, whom he perceived to be disloyal immigrants and potential spies.

Thus, the Espionage Act was born against the backdrop of World War I and amidst fears of subversion of American democracy. Its primary purpose was to deal with avoidance of the draft, sabotage of state activities, and espionage. But its subsequent interpretations led to the punishment of socialists, pacifists, and other anti-war activists. Most infamously during this period, former Presidential candidate Eugene V. Debs was sentenced to 10 years in prison for a 1918 speech, denouncing the Espionage Act of 1917.

The Espionage Act was further modified by the Sedition Act of 1918 but those amendments were ultimately overturned on March 3, 1921, when World War I ended. The Sedition Act sought to criminalize statements during the war that were “disloyal, profane, scurrilous, or abusive…about the form of government of the United States.”

The goal of the Espionage Act - which whistleblowers such as Daniel Ellsberg, Chelsea Manning, and Edward Snowden have been charged with violating, and which is now being threatened against WikiLeaks - was never to protect national security, that is, the nation's security. It was to silence criticism about the state's involvement in the Great War. It was closely followed by the Sedition Act, whose express purpose was to silence any kind of government criticism at all.

If the state and the nation were the same thing - as the state would have us believe - then the Espionage Act wouldn't exist. If the state and the nation are distinct, but the state is accountable to the nation (we the people), the Espionage Act still wouldn't exist. It is only if the state is unaccountable to the nation and acting in its own, distinct interests that something like the Espionage Act could come to be. Since the Espionage Act does exist, the conclusion is simple.

The state can only arise when the fear of a greater power justifies the creation of an equally great power to defend against it. This is why the world powers continually stoke fear among its citizens about other world powers, or else tout the benefits of creating global political unions. But the state's real enemy is its own citizens, who will revolt if the illusion of government "by the people, for the people" is ever broken.

The EFF wants you to sign a petition telling U.S. policymakers to reform the Espionage Act. But this only perpetuates the illusion that we still have the power to hold the government accountable.

Hide Your Cash! Hide Your Bitcoin! Hide Your Prepaid Mobile Phone! The U.S. Government Is on the Loose

June 15, 2017 nitsuj

Simon Black, writing at Sovereign Man and syndicated at Zero Hedge:

This one is almost too ridiculous to believe.

Recently a new bill was introduced on the floor of the US Senate entitled, pleasantly,

“Combating Money Laundering, Terrorist Financing, and Counterfeiting Act of 2017.”

You can probably already guess its contents.

Cash is evil.

Bitcoin is evil.

Now they’ve gone so far to include prepaid mobile phones, retail gift vouchers, or even electronic coupons. Evil, evil, and evil.

These people are certifiably insane.

Among the bill’s sweeping provisions, the government aims to greatly extend its authority to seize your assets through “Civil Asset Forfeiture”.

The Future (Economy) Is Decentralized

June 14, 2017 invisiblehand

Jason Hiner has a provocative piece over at ZDNet titled “Yes, Blockchain could reverse the course of civilization and upend the world’s most powerful companies.” Does the premise hold any merit? Hiner gives a 20,000-feet view of how blockchain tech could disrupt at least four industries: banking, energy, music, and journalism. He ends the article:

We have to consider the fact that Blockchain could rewrite some of the rules of capitalism, which naturally favors concentrations of wealth. [Co-author of Blockchain Revolution Alex] Tapscott thinks of it not so much as redistributing wealth as “pre-distributing” it by opening up more opportunities to more people, by default.

I agree with all but the part about rewriting the rules of capitalism. Actually, Hiner has struck on something quite profound, though he may not even realize it. What he thinks is a revision of capitalism might actually be the culmination of capitalism: private ownership of the means of production at a radically individual level. Socialists have always feared that capitalism concentrates wealth within the “capitalist” class – those who have the access to capital necessary for mass production. But what if mass production was simply a step in the process of capitalism until newer technologies (created thanks to capitalism) made the mass production system obsolete?

Perhaps Hiner makes the mistake, as many do, of equivocating capitalism with mass production. But mass production is only one possible model within a capitalist economy. The only prerequisite of capitalism is private ownership of scarce resources. How that plays out in the free market is limited only by technology and the human imagination. In fact, we know that, despite talking about it in aggregate terms, “consumer demand” is always specific and individual. There is no “demand,” there are only millions of demands – as many as there are consumers. If we could get a product that met our exact specifications at an acceptable price, we would. Mass production is the best system we’ve come up with so far to meet a general cluster of demands in a cost-efficient way. But that’s changing.

With the advent of 3D printing, there is a real possibility that in the not-too-distant future, we can make our own products that meet our own particular specifications without needing a large corporation to produce it for us. With the blockchain protocol, we can run a one-man taxi service without even needing Uber to mediate and verify the exchange of trust. We can make a product in our basement, sell it on a decentralized app, verify the transaction on the blockchain, and ship the product via our personal drone to a buyer across town. We can become self-employed entrepreneurs who don’t need large amounts of capital, extensive infrastructure, or an established employer to generate a living income. And none of this violates the fundamental rule of capitalism: private ownership.

We’ve always assumed that capitalism creates a wide income inequality gap. But the advent of decentralizing technology may reveal that capitalism’s true nature is to diminish inequality and favor the “little guy” after all.

Bruce Schneier Again Calls For IoT Regulation, Which Is Still the Wrong Solution

June 13, 2017 nitsuj

For everything Bruce Schneier has contributed to freedom through security and cryptography, you’d think he’d have a little less faith in government intervention. But as we’ve seen before, calling for the government to protect us has become quite natural for him – particularly when it comes to the internet of things (IoT).

A recent op-ed of his in The New York Times entitled What Happens When Your Car Gets Hacked? continues to sound the alarm, concluding, “As politically untenable as it is, we need government to step in to create the market forces that will get us out of this mess.”

Once again, the folks at the Mercatus Center have a sound rebuttal:

First, it's important to note that the traditional software industry has been able to provide security without such government intervention, as Schneier himself stated. This did not happen overnight. With time, and trial and error, technology firms were able to build out the knowledge and labor pool needed to quickly patch software vulnerabilities. After all, providing good security is an important way that businesses compete. Companies that lag behind on security will take a reputational hit and eventually be left in the dust by companies that prioritize security. It is not perfect, but it represents a superior approach to imposing a "Department of Internet Security" for devices.

The problem with creating such a federal bureaucracy is that we could expect the rate of new innovation to slow considerably. Subjecting businesses to expensive pre-market approval introduces compliance costs and uncertainty that many small firms simply can't bear. This has been the case with Food and Drug Administration regulation, where most new pharmaceuticals are introduced by a handful of huge companies that can withstand the years-long, multi-million dollar regulatory process.

They continue with a counterpoint that strongly rebukes any call for the government to regulate or protect something they so obviously violate themselves (i.e., protecting our privacy, which they blatantly invade through mass surveillance):

Furthermore, we would need to trust such an agency to have the wherewithal to promulgate appropriate security guidelines in the first place. As Mercatus Center research has pointed out, federal agencies have consistently failed to meet their own security guidelines and suffer record numbers of information security breaches each year. It is hard to imagine that the federal government can improve the security of our nation's devices when it cannot even get its own house in order.

Finally, is Schneier truly unaware of non-government solutions to IoT security like Cloudflare’s Orbit? Or is he ignoring them because they don’t fit his narrative?