Feds Take A Step Closer To Trying To Regulate Bitcoin

from the control-control-control dept

We're still somewhat skeptical about the longterm prospects for Bitcoin, even if it has shown the ability to rebound after its initial hypecycle crashed. However, we've always known that the government was uncomfortable with the concept of Bitcoin. From Senator Chuck Schumer insisting that it was money laundering to the FBI exploring the technology, you knew that sooner or later the government would try to do something.

Recently, they took a step in the direction of trying to gain some tiny bit of control over Bitcoin by having the Financial Crimes Enforcement Network (FinCEN) issue new guidelines concerning rules for (unnamed) "de-centralized virtual currency." Basically, the rules say that "money services businesses" including "money transmitters" will have to report "potentially suspicious transactions" to the government -- which potentially could involve a decent number of Bitcoin transactions. The question was who qualifies, and the new rules basically suggest if there's a connection to another currency (say... US dollars), then you've got an issue. Users of Bitcoin are clearly exempted, but with sellers... it's not so clear. As Tim Lee explains:

On the other hand, "a person that creates units of convertible virtual currency and sells those units to another person for real currency or its equivalent is engaged in transmission to another location and is a money transmitter," and is therefore subject to federal regulations.

However, this may only apply to those who perform money transmitting services "as a business." FinCEN says that "a user of virtual currency is not an MSB under FinCEN's regulations and therefore is not subject to MSB registration, reporting, and record keeping regulations." But with a peer-to-peer currency, the line between a "user" and an "administrator or exchanger" is not at all clear. The regulations define an exchanger as someone who "engaged as a business in the exchange of virtual currency for real currency."

Of course, with an unclear rule, you can bet that some people are going to test the boundaries -- and that could eventually lead to a very interesting case, challenging specific aspects of Bitcoin.

Filed Under: bitcoin, decentralized currency, money laundering, regulation

Sen. Charles Grassley: An Unregulated Video Game Market Is A Dangerous Thing

from the first-amendment-even-MORE-threatening,-apparently dept

It looks as if politicians just aren't going to let video games continue to operate without regulatory oversight. We've already seen Rep. Jim Matheson's bill, which would basically turn a voluntary system (the ESRB) into a mandatory one with fines handed out for violations. It's a cynically redundant piece of legislation which would score Matheson a cheap political win, if it only had a chance in hell of passing. (The bill is even more redundant than that -- Matheson had this same bright idea twice before, in 2006 and 2008.)

Now, at the current Judiciary Committee hearings on "gun violence," Sen. Charles Grassley has suggested that current rating system just simply isn't good enough.

"There are too many video games that celebrate the mass killing of innocent people — games that despite attempts at industry self-regulation find their way into the hands of children," Grassley said at a Judiciary Committee hearing called to examine the causes of gun violence in the wake of the mass shooting at Sandy Hook Elementary School in Newtown, Conn., last month.

Really? Everyone's current scapegoat, Celebrate Mass Killing: Modern Warfare [Current Iteration] and its spinoff, Celebrate Mass Killing: Black Ops, tend to celebrate the killing of people trying to kill you. And only if by "celebrate" you mean, "advance the storyline," and if by "advance the storyline," you mean "reach arbitrary hotspot that prevents enemy re-spawning and allows your more capable squadmates to turn a doorknob or something in order to continue celebrating mass killings."

But more seriously, despite the attempts of the government to regulate tobacco and alcohol sales, these items still find their ways into the hands (and mouths) of underage persons. And despite the government's best efforts to keep porn out of the eyes and hands of youngsters, many, many teens have seen a thing or two and attempted even more. No system is perfect but I'm willing to put the stats of the purely voluntary ESRB (and the retailers involved) up against the stats of any government regulated, sin-tax-paying item.

As for actual dangerous items currently regulated by federal and state governments, here's where they line up. Cigarette sales to minors are at 8.5%, falling from 40% in 1997 (2011 statistics). If there's a national percentage on alcohol sales, it's very well hidden. Here's some information from various locales on underage sales compliance rates. Blount County, TN - 9.7%, Escambia County, FL - 5.8%, Fort Wayne, IN - 4.3% (liquor stores)/8.8% (bars and restaurants), Washington, D.C. - 9.5%, Salem, NH - 2.9%, Boulder, CO - 13%. So, overall, roughly in line with cigarette sales, if not possibly lower.

Both percentages are admirably low, but compare those percentages to what the ESRB has achieved without the threat of arrest or loss of a retail license.

According to stats released by the FTC (h/t to commenter DCX2 for tracking this down), underage teenage shoppers were only able to obtain M-rated video games 13% of the time, as compared to 38% for R-rated DVDs, 33% for R-rated movie tickets and 64% for music with a Parental Advisory sticker.

Grassley seems to feel that putting the government in charge of enforcement would keep fewer M-rated games from "finding their way into the hands of children." Perhaps he should first take a look at how effective existing regulation is at keeping cigarettes and alcohol out of minors' hands. According to the CDC, 39% of high school students had consumed alcohol in the last 30 days. Not only that, but underage consumption (people aged 12-20) represents 11% of the total amount of alcohol consumed yearly in the US. As for cigarettes, the number is only 19.5% of high school students.

So, even a well-regulated market fails to prevent these items from being used/consumed by minors. Regulating the video game market will result in much of the same. Deciding it's now a crime to sell a minor an M-rated video game won't prevent a family member or friend from purchasing the latest "celebration of mass killing" for someone under the age of 18. Most people are going to feel that handing off Call of Duty to a 15-year-old weighs easier on their conscience than handing them a six-pack of beer, a pack of smokes or a gun.

But here's the key issue: the government can safely regulate tobacco and alcohol sales without fear of trampling on the First Amendment. Not so with games, although Grassley seems willing to put on his boots and start trampling.

Grassley pointed to evidence that a mass killer in Norway had played the popular "Call of Duty: Modern Warfare" game and had referred to the game as part of his "training simulation."

"Where is the artistic value in shooting innocent civilians?" Grassley asked.

Oh, I see. We'll know what art is when Grassley points it out. Once again, Call of Duty is labeled an "innocent civilian shooter," somehow missing the point of the game completely. Sure, one could argue that Grand Theft Auto is an "innocent civilian shooter," but just because you can do it, doesn't make it the overall point of the game. You don't advance the story by shooting innocent people. It's always an option, but it's never required. (Personal note: I'm fairly sure I've run over way more civilians than I've actually shot, but I rarely get the urge to drive up and down the sidewalk at 60 mph when I'm behind the wheel...)

Once you have a politician asking for regulation and questioning artistic value in the same breath, you've got a problem on your hands. The Supreme Court has already determined that government regulation of video game content is a violation of the First Amendment, but recent events have seemingly made it "OK" to push this dubious agenda again. The president has authorized a study into violent media (including video games), but it looks as if these legislators don't have any interest in collection actual evidence before making their move.

Filed Under: charles grassley, first amendment, free speech, regulation, video games, violence

Robots Or Robber Barons? What If The Answer Is Both And Neither?

from the efficiency-lags-change dept

For reasons that I do not fully understand, Paul Krugman is a name that gets people really worked up for often irrational reasons -- mostly having to do with red team / blue team political arguments that have little bearing on actual economics. My personal preference is to ignore the whole somewhat meaningless "left/right" dichotomy (no matter where a particular economist is normally associated) and focus on the actual economics being discussed. And, recently, Krugman has been doing some deep thinking on what he's referred to as the question of robots or robber barons. The issue may be a little deep in the weeds for folks who aren't econgeeks, but it is both really interesting and really important to think through.

The short version -- hopefully translated sufficiently via my "econgeek to normal people" translator -- is that there are economic metrics out there suggesting that things should be much better than they are: in particular, companies are making massive profits. But, at the same time, wages are not showing any sort of increase. Krugman uses this graph to demonstrate the point: As the graphic shows, as a percentage, wages ("labor") have been dropping. If the output is not going to wages, where is it going? Krugman uses the term "capital," which, basically (in this case), just means return on investment for assets: that is, if you own stuff, you're getting a return on it, which is going into your pockets rather than to people doing work. Of course, when you look just at percentages of a single factor, things can quickly get misleading -- and at least some have suggested that looking at just the percentage going to labor may be exaggerated by a hidden third factor, such as land. While using terms like "labor" and "capital" are standard in economics, I find that they actually can distort the conversation (and even Krugman notes that some of the discussion veers into what sounds like "Marxist" discussions on "capital" and "labor").

A simpler and perhaps more useful way of looking at things is: Where is the money going and how is it spent? And, as it stands now, over the past ten years, the amount of money going to wages, as a percentage of money being made, has been going down. So what's it all mean? Krugman has two theories -- both of which may actually be true to varying degrees.

• Robots: The idea here is that automation has meant fewer jobs, and thus has held down wages and kept the supply of workers high. This is an old argument, of course, but perhaps one worth thinking about. We'll discuss it more below.
• Robber barons: That is, monopolists. The argument here is that when you see an aggregation of wealth to "capital," it suggests that the free market is somehow "stuck," and one possible reason is that the "owners of capital" have effectively created monopolies, allowing them to retain more than a free market might allow, via monopoly rents.

If you think both of those suggestions sound somewhat anachronistic, you're not wrong. Both of those possible arguments sound quite similar to the complaints people made a century or so ago. And, as with that situation, I'd argue that the two explanations that Krugman puts forth may both have some element of truth, but also may not tell the whole story by a long shot.

Let's start with the robots. For years, many have suggested that greater productivity from automation leads to lower demand for human employees, thus creating less demand for workers -- leading to lower salaries, high unemployment and all that jazz. Many people (myself included) have often used the term "luddites" for this, after the original followers of Ned Ludd, who believed that the industrial revolution was destroying jobs, leading to the "Luddites" smashing machines. The term is used pejoratively, because the original Luddites, for the most part, weren't just wrong but were ridiculously wrong. Far from destroying jobs, automation eventually created many new jobs.

And, instinctively, I have the same reaction to the argument when put forth here. We've heard this claim for so long, that greater productivity leads to fewer jobs -- but in practice it has never come true. It has, certainly, meant that there has been job displacement, and potentially a shift in job skills requirements -- which can be very difficult for those whose skills are no longer relevant. But, in the longer term, such automation has always created more jobs.

Does that necessarily mean that this shall always be the case? Not necessarily, but I'd argue that the long history of it being true suggests that you would need very, very strong evidence to back up the claim this time around -- and I'm not convinced we've seen that. Of course, playing devil's advocate to myself, I can see one plausible argument that someone could make (even if I don't think it's true): automation in physical work increased demands for jobs in other sectors -- such as services and information processing (desk jobs). But the information age revolution has now started to automate many of those jobs as well, and it's not clear where we move along the spectrum from there. That is, as the argument goes, that new jobs have always been created further along the spectrum from manual labor to services to information processing, but we've more or less hit the end of the line.

I find this difficult to believe for a few reasons. First, the same argument was made in the past every time some new fears about automation came along. And every time it turned out that there were new job opportunities. I can't see that changing now. At all. If it becomes true that labor is really increasingly available or cheap, that will create all sorts of new opportunities to make use of it. The news that Apple is going to start making some computers in the US is just a small indication of that possibility coming true. And, yes, even if they're using a robot-centric process, they're still creating domestic jobs. But, further on that, there's tremendous opportunity coming out of disruptive innovation to create new jobs where none really existed previously. The number of people making a living by selling goods on things like eBay, Etsy or Amazon is astounding. Even newer tools like Kickstarter and Indiegogo are creating additional possibilities, and we write about all sorts of interesting business models all the time -- creating new opportunities. Similarly, we've seen things like distributed call center services, such that people can work from home and be productive. In fact, this could help explain some aspects of wage decline, as some people, who might have formerly not been in the workforce at all, can now work part time from home.

But, of course, job displacement is messy, and figuring out where the new job opportunities are, and how they apply on a wider scale, is not a smooth process at all. It takes time to work out the kinks -- and that could explain the lag in wages. It could simply be the dip in efficiency as we enter that chaotic period of experimentation and attempts at new things before it becomes more clear where the new job opportunities will be.

The "robber baron" argument makes a lot more sense to me -- and it even appears that Krugman may be leaning bit more that way, after hearing from some other economists:

Barry Lynn and Philip Longman have argued that we're seeing a rapid rise in market concentration and market power. The thing about market power is that it could simultaneously raise the average rents to capital and reduce the return on investment as perceived by corporations, which would now take into account the negative effects of capacity growth on their markups. So a rising-monopoly-power story would be one way to resolve the seeming paradox of rapidly rising profits and low real interest rates.

Of course, I think that the use of the term "robber barons" is potentially misleading as well. This isn't necessarily a case of the Andrew Carnegies, JD Rockefellers, JP Morgans and Cornelius Vanderbilts of old. Instead, it often seems that what we're dealing with are less super greedy "robber barons" (and yes, I know some people will point to examples that suggest otherwise -- especially on Wall Street) and more of a fight against innovation. This goes back to my recent discussion on corruption laundering, in which companies are able to secure favorable regulations that actually help them against disruptive upstarts by arguing that allowing the upstarts will harm "jobs" or will upset the economic apple cart.

In the end, that leads me to wonder if what we're really seeing is a third thing, which can account for both the "robots" and "robber barons" story lines and tie back to that corruption laundering situation: the rise of what Andy Kessler has referred to as political entrepreneurs vs. market entrepreneurs. In that scenario, you have companies who aren't quite robber barons, but are adept at using the political system to engage in a form of "corruption laundering" to put in place regulations that limit true competition and the kind of innovation that helps to speed up the creation of new jobs.

In some sense, we've discussed this before, in noting that politicians often fear disruptive innovation because it "destroys jobs" even as it's creating new ones. So they pass regulations that hinder disruptive innovation, in an attempt to "protect jobs." But the end result is that the few larger players in the industry tend to suck up control of that industry and, as such, limit job growth (and begin to profit by being able to capture the monopoly rents). They can employ greater automation to suck more profits out of their own business, but also can hold back the disruptive innovation that creates new jobs.

So, in that scenario, you get higher profits and fewer jobs -- with increasing automation. But you're missing out on the important disruptive innovations that help create the new jobs. Part of the problem with the "robots" storyline from Krugman is that it assumes all technological advancement is equal: that big companies automating is the same thing as disruptive innovation that enables new jobs. I don't think that's true. Either way, these are certainly big and important questions worth thinking about and exploring.

Filed Under: automation, capital, corruption, disruption, economics, innovation, jobs, labor, paul krugman, regulation, robber barons, robots, wages

Do We Really Want The UN In Charge Of Cybersecurity Standards?

from the answer:-no dept

We've been talking quite a bit about the upcoming efforts by the International Telecommunication Union (ITU) to expand its ability to govern the internet, and numerous proposals are being submitted by various telcos along those lines. The folks over at CDT are ably demonstrating why this is dangerous in a number of ways, starting with why the ITU is the exact wrong place to be dealing with cybersecurity issues, even though many of the proposals deal with cybersecurity. Take, for example, the proposal of African Member States, which suggests that the ITU can be a central force in "harmonizing" data retention laws and rules. As CDT notes, this seems to assume that the only issue with data retention laws are that they are different in different countries. But that ignores the fact that many people question whether or not such laws even make sense in the first place:

This reference to data retention well illustrates the problems with involving the ITU in issues related to cybercrime and cybersecurity. Not only do national laws on data retention vary greatly, but there is ongoing controversy about whether governments should impose data retention mandates at all. In addition, where data retention is required, there are many different views on the legal standards under which governments should be able to gain access to retained data – whether access should require a court order, for example. Such questions are crucial to adopting a data retention law, but are far outside the expertise of the ITU. Other concerns arise from the fact that data retained by a service provider may, absent specific legal and procedural safeguards, be subject to access by the government to investigate any crime, may be accessed by intelligence agencies, and may be shared with other governments to assist their investigations. In addition, the more data that companies are required to retain, and the longer the retention period, the greater the risk that personal information could be breached, leaked, or otherwise abused.

Elsewhere, the report highlights how many of the proposals on "cybersecurity" seem more likely to set up rules and laws that help repressive regimes crack down on critics and dissidents. And that, of course, highlights the real problem here. There is nothing in the ITU that involves actually determining what's best for the public and for individuals' rights. Instead, the proposals are from big (often state-supported) telcos and governments themselves. The CDT paper correctly argues that a group like the ITU simply isn't as quick or as flexible as any reasonable body dealing with the rapidly changing, always dynamic world of cybersecurity. But it goes even further than that. An effective look at cybersecurity requires recognizing that governments and telcos often have views that are not at all in the best interests of citizens -- and handing off all discussions on "cybersecurity" regulations to such a body seems ripe for abuse in ways that may help governments or telcos, but at the expense of the public and their ability to speak out.

Filed Under: cybersecurity, data retention, flexibility, itu, regulation, security, telcos, un, wcit

DC Dumps Bill To Force Uber Into High Prices; Complains That The Bill Was To Help Uber

from the regulatory-capture dept

Earlier today, we wrote about the city of Washington DC working on a a bill that would require startup car service Uber to charge five times as much as a cab, arguing that they need to regulate what is considered a "premium class." They don't explain why one needs to regulate what's premium and what's not, but that's what you get in a massively regulated/anti-competitive market. The public outcry over this regulation, however, has resulted in the Councilmember who wrote the amendment, Mary Cheh, backing down and shelving it.

As we noted in our earlier post, Cheh had said all along that the amendment was actually an attempt to legalize Uber, after a Taxicab Commission "sting" earlier this year, which claimed that Uber was acting illegally. In response to all of this, Cheh seems upset, since she says that she worked with Uber to create the amendment, and was blindsided by the criticism:

"Several months ago, Uber contacted me and asked to work together to legalize services like Uber in the District... Since then, I have met with Uber many times, negotiated in good faith, and believed that I had reached an agreement with them last week."

Others have suggested that parts of the amendment could be acceptable if they remove the minimum pricing rules. Uber, for its part, claims that it's always believed the service was legal in DC, so it never believed that the amendment was needed to "make it legal." For what it's worth Uber clearly has benefited from this fight, as it drew an awful lot of publicity to the company's presence in DC (and elsewhere). Either way, it seems difficult to see how regulating a high price benefits Uber.

And, in the end, what you're left with are questions about why taxi licensing needs to be so restrictive and so all-encompassing. Are there concerns about keeping passengers from being ripped off and keeping them safe? Sure, but there seem to be ways to deal with that which don't involve entirely regulating every aspect of the market, limiting competition and setting the actual pricing. But, in the end, as we've seen in other markets, those in regulated markets tend to figure out ways to use the regulations to their own advantage...

Filed Under: dc, mary cheh, regulation, taxis
Companies: uber

Ron And Rand Paul: Net Neutrality And The Public Domain Are Really Evil Collectivist Plots

from the seriously,-now? dept

I tend to be a pretty big supporter of free market capitalism and the importance of real property rights (not imaginary property rights). As such, I've always been intrigued by Ron Paul's libertarian stance against big government and excessive regulation. I think that position is pretty clearly staked out in my writing over the years. However, I'm perplexed by the new "internet freedom" manifesto from Ron Paul and Rand Paul, which seems like a hodgepodge of poorly thought out concepts -- some of which make sense, and some of which do not. While I agree about keeping the government out of internet regulations, the document seems to attack many of those who actually agree with the Pauls by setting up ridiculous strawmen. In particular, the Pauls come out vehemently against both net neutrality as a concept and any effort to expand the public domain -- even though both are really about limiting big government.

In fact, in a bizarre twist, the Pauls seem to be supporting massive government subsidies and handouts in this document, even as they insist they're not.

Now, I agree that the whole "net neutrality" debate has been muddled over the years, but it is entirely possible to be for the end-to-end principles of the internet (which is what most people mean by net neutrality) and against bad regulations trying to "force" neutrality on the internet. But not in the world of the Pauls. To them, any support of a neutral internet must be about "coercive state actions" and "collective rule" over "privately owned broadband high-speed infrastructure." This makes me curious if the Pauls spoke out against the billions and billions in subsidies and rights of way grants that the government provided the telcos and cable providers to build their networks. Once again, I am against regulating net neutrality -- because it's obvious that the telcos will control that process and the regulations will favor them against the public -- but pretending that broadband infrastructure is really "privately owned" when so much of it involved tax-payer-funded subsidies and rights of way is being in denial.

Then there's the following, where they claim that these evil "collectivists" want to limit "private property rights on the internet" and are saying that "what is considered to be in the public domain should be greatly expanded." Considering the Pauls were both instrumental in the fight against SOPA and PIPA, you would think that the two of them understood how copyright law is massively abused and how beneficial the public domain is. But apparently not. To them it's all part of this "collectivist" plot. Earth to the Pauls: copyright is a massive government-granted monopoly privilege. That's the kind of thing we thought you were against, not for. In this document, you seem to be arguing for one of the largest programs in the world of a centralized government handing out private monopoly privileges.

There are a few other whoppers in there, including the claim that the groups talking about a "right to privacy" rarely care about it when it comes to government snooping -- and, in fact, support government surveillance and collection of private citizens' internet data. That's funny, because the very groups that the Pauls appear to be slamming... happen to be the same ones who were central in the fight against CISPA, which was all about the government snooping on our internet activity.

Frankly, this document is a joke from two people who should know better. There are some good points in there about limiting government regulation of innovative companies, but when they're supportive of two of the biggest government handouts around -- telco subsidies and copyright -- it's hard to take them seriously when they claim they're for smaller government and about getting the government out of the internet.

Filed Under: net neutrality, privacy, public domain, rand paul, regulation, ron paul, telco subsidies

Why You Can't Braid Someone's Hair In Utah For Money Without First Paying $16k

from the regulatory-control dept

The common wisdom that you'll often hear is that industries hate regulations, and would prefer deregulation. And, in certain areas that's definitely true. But, in others, industries want regulation -- but not for a good reason. It's because legacy players realize two things: (1) they can often "control" the regulatory process (hello regulatory capture) to twist it to their own advantage and (2) it's a really handy way to limit competition. We just recently wrote about some of the more ridiculous factors concerning teaching certifications. Lots of people pushed back in the comments arguing -- correctly -- that just because someone knows something, it doesn't mean they're a good teacher. But... there's another point that we made in the post that many of those people ignored: just because you "certify" teachers, it doesn't mean they're any better at teaching. In fact, as our post noted, the research has shown no noticeable difference between certified and uncertified teachers. So you can make the argument all you want that certification is somehow "needed," but if that certification doesn't seem to help at all, it's wise to at least question the certification process.

The same Planet Money folks who brought us that story recently did a podcast and a NY Times article on another example of regulatory ridiculousness. This one involved a woman who had built a small business braiding the hair of African children in Utah. The woman, Jestina Clayton, grew up in Sierra Leone, where she learned to braid hair, and when she ended up in Centerville, Utah, she discovered there was demand there, due to a large number of adopted African children, whose parents had no idea what to do with their hair. Then, someone threatened to "report" her for practicing "cosmetology" without a license. She checked it out and discovered that bizarre (but all too common) regulation made that true -- but to get her license she'd have to go to school for two years at a cost of $16,000. All to braid hair. And, even more ridiculous, none of the schools taught anything having to do with braiding hair like Clayton did. It would be a pure waste.

If you can, you should listen to the Planet Money podcast on this, because they actually get a spokesperson from the "Professional Beauty Association" try to explain why the government must regulate "professional beauty" practitioners before they kill again (well, only slight exaggeration). She does go on and on about the "consumer safety issues" of the people she's supposedly representing. My favorite risk? "Open wounds." From hair braiding?
Either way, Clayton went before the (I'm not joking) Barber, Cosmetology/Barber, Esthetics, Electrology and Nail Technology Licensing Board of Utah, to try to convince them to let her braid without a license. Apparently this became a big issue and "licensed cosmetologists" came out of the woodwork to argue against her -- and her request was denied.

As the report notes: none of this is to necessarily say that all regulation is bad and that industries don't need some sort of regulation. But, at the very least, if there is going to be regulation, shouldn't there be some evidence that it's (a) needed and (b) effective? Because, somehow, I don't think that there's a big risk from a woman braiding some kids' hair in Utah.

Filed Under: cosmetology, jestina clayton, regulation, sierra leone, utah

Economist Notices That The US Is Getting Buried Under Costly, Useless Over-Regulation

from the not-what-we-need dept

The US is often talked about as a major supporter of the "free market," but as we've seen over and over again what we have is really crony capitalism, with lots of efforts being made to protect certain industries through regulation. This hasn't gone unnoticed. The Economist has an article more or less mocking the US for pretending to be all about small government free markets, while really being buried in pointless, confusing and unnecessary regulations:

But red tape in America is no laughing matter. The problem is not the rules that are self-evidently absurd. It is the ones that sound reasonable on their own but impose a huge burden collectively. America is meant to be the home of laissez-faire. Unlike Europeans, whose lives have long been circumscribed by meddling governments and diktats from Brussels, Americans are supposed to be free to choose, for better or for worse. Yet for some time America has been straying from this ideal.

The article points its finger at two key culprits, both of which make sense: politicians who think they can craft perfect legislation to account for every eventuality... and the lobbyists who provide them language to make that possible:

Two forces make American laws too complex. One is hubris. Many lawmakers seem to believe that they can lay down rules to govern every eventuality. Examples range from the merely annoying (eg, a proposed code for nurseries in Colorado that specifies how many crayons each box must contain) to the delusional (eg, the conceit of Dodd-Frank that you can anticipate and ban every nasty trick financiers will dream up in the future). Far from preventing abuses, complexity creates loopholes that the shrewd can abuse with impunity.

The other force that makes American laws complex is lobbying. The government’s drive to micromanage so many activities creates a huge incentive for interest groups to push for special favours. When a bill is hundreds of pages long, it is not hard for congressmen to slip in clauses that benefit their chums and campaign donors. The health-care bill included tons of favours for the pushy. Congress’s last, failed attempt to regulate greenhouse gases was even worse.

These two things are connected, rather than independent, as the article seems to imply. The first one is the key problem. To legislators, creating legislation is the only hammer in their toolbox, so they see every issue as a nail, even when that's rarely the case. And that hubris of being able to create perfect legislation to account for every eventuality is the opening for the lobbyists. Politicians who want to think through every possibility ask the lobbyists to help -- and the lobbyists then have every opportunity to tilt the playing field to their clients, and against the public interest. And that's exactly what happens all too often.

And, of course, if you have any familiarity with these issues, you know that it's incredibly costly:

Complexity costs money. Sarbanes-Oxley, a law aimed at preventing Enron-style frauds, has made it so difficult to list shares on an American stockmarket that firms increasingly look elsewhere or stay private. America’s share of initial public offerings fell from 67% in 2002 (when Sarbox passed) to 16% last year, despite some benign tweaks to the law. A study for the Small Business Administration, a government body, found that regulations in general add $10,585 in costs per employee. It’s a wonder the jobless rate isn’t even higher than it is.

The Economist presents some recommendations on how to fix this. The first is that every law should have a cost-benefit analysis from "an independent watchdog" rather than the current efforts by the CBO. I'm not really convinced that will have much of an impact. We already have CBO estimates, and even if they're not accurate, very few people pay much attention.

They also suggest "the rules need to be much simpler." They suggest that it would be "better to lay down broad goals and prescribe only what is strictly necessary to achieve them." I'm pretty skeptical about this suggestion too. Vague, broadly drafted language leads to uncertainty, and uncertainty can lead to risks and liability... and fear to do things. That wouldn't help. I understand the reasoning here, and if the "broad goals" really are binding, then perhaps this could work somehow, but I think that a better response might be that if the law needs to be so complex, perhaps the law is attacking the wrong issue.

There is one suggestion that makes sense to me, but I don't think it goes far enough:

"All big regulations should also come with sunset clauses, so that they expire after, say, ten years unless Congress explicitly re-authorises them."

We should take that much, much further. First, I don't think it should just be "big regulations." Let's sunset everything, and force Congress to re-evaluate laws already on the books. Along those lines, all new laws (and any re-authorizations of old laws) should come with clear and stated metrics that will be used the next time around to determine if the bill was successful. If the metrics are not met, then the bill should not be allowed to be re-authorized without significant changes. It seems like rules like that might actually take us in a reasonable direction towards passing effective regulations, rather than the mess that we have today. It still amazes me that legislation doesn't already come with metrics to determine if they actually do their job.

Filed Under: expansive, red tape, regulation, us

Tim O'Reilly Explains Where The Federal Gov't Has Gone Wrong On SOPA/PIPA: Solving The Wrong Problem

from the indeed dept

A few months back, in going into great detail on everything wrong with PIPA & SOPA, I started it off by explaining that the whole effort was attacking the wrong problem. Here's what I wrote at the time:

That main issue, we're told over and over again, is "piracy" and specifically "rogue" websites. And, let's be clear: infringement is a problem. But the question is what kind of problem is it? Much of the evidence suggests that it's not an enforcement problem and it's not a legal problem. Decades of evidence from around the globe all show the same thing: making copyright law or enforcement stricter does not work. It does not decrease infringement at all -- and, quite frequently, leads to more infringement. That's because the reason that there's infringement in the first place is that consumers are being under-served. Historically, infringement has never been about "free," but about indicating where the business models have not kept up with the technology.

Thus, the real issue is that this is a business model problem. As we've seen over and over and over again, those who embrace what the internet enables, have found themselves to be much better off than they were before. They're able to build up larger fanbases, and to rely on various new platforms and services to make more money.

And, as we've seen with near perfect consistency, the best way, by far, to decrease infringement is to offer awesome new services that are convenient and useful. This doesn't mean just offering any old service -- and it certainly doesn't mean trying to limit what users can do with those services. And, most importantly, it doesn't mean treating consumers like they were criminals and "pirates." It means constantly improving the consumer experience. When that consumer experience is great, then people switch in droves. You can, absolutely, compete with free, and many do so. If more were able to without restriction, infringement would decrease. If you look at the two largest contributors to holding back "piracy" lately, it's been Netflix and Spotify. Those two services alone have been orders of magnitude more successful in decreasing infringement than any new copyright law. Because they compete by being more convenient and a better experience than infringement.

Tim O'Reilly (who you should know already), who makes his living in the content business, but has always been against these kinds of ridiculous laws, has come out with a great, detailed discussion of the same issue, concerning how the federal government still has mis-defined the problem. He's doing this in response to the White House's statement on Saturday, and makes some important points:

I found myself profoundly disturbed by something that seems to me to go to the root of the problem in Washington: the failure to correctly diagnose the problem we are trying to solve, but instead to accept, seemingly uncritically, the claims of various interest groups. The offending paragraph is as follows:

"Let us be clear—online piracy is a real problem that harms the American economy, and threatens jobs for significant numbers of middle class workers and hurts some of our nation's most creative and innovative companies and entrepreneurs. It harms everyone from struggling artists to production crews, and from startup social media companies to large movie studios. While we are strongly committed to the vigorous enforcement of intellectual property rights, existing tools are not strong enough to root out the worst online pirates beyond our borders."

In the entire discussion, I've seen no discussion of credible evidence of this economic harm. There's no question in my mind that piracy exists, that people around the world are enjoying creative content without paying for it, and even that some criminals are profiting by redistributing it. But is there actual economic harm?

From there, he talks about his own experience running a content business, and how he's learned that any actual infringement tends to benefit him in the long run. That's because, like I explained above, if you put in place a smart business model (something Tim is good at) piracy is no problem at all. O'Reilly is fond of the phrase that "obscurity is a bigger problem than piracy" and he's completely right:

In my experience at O'Reilly, the losses due to piracy are far outweighed by the benefits of the free flow of information, which makes the world richer, and develops new markets for legitimate content. Most of the people who are downloading unauthorized copies of O'Reilly books would never have paid us for them anyway; meanwhile, hundreds of thousands of others are buying content from us, many of them in countries that we were never able to do business with when our products were not available in digital form.

History shows us, again and again, that frontiers are lawless places, but that as they get richer and more settled, they join in the rule of law. American publishing, now the largest publishing industry in the world, began with piracy. (I have a post coming on that subject on Monday.)

From there, he starts talking about what the White House should be doing, and it's simple: look for ways to allow innovation to flourish -- not create protectionist plans for industries who aren't keeping up with the times:

Congress (and the White House) need to spend time thinking hard about how best to grow our economy - and that means being careful not to close off the frontier, or to harm those trying to settle it, in order to protect those who want to remain safe at home. British publishers could have come to America in the 19th century; they chose not to, and as a result, we grew our own indigenous publishing industry, which relied at first, in no small part, on pirating British and European works.

If the goal is really to support jobs and the American economy, internet "protectionism" is not the way to do it.

It is said (though I've not found the source) that Einstein once remarked that if given 60 minutes to save the world, he would spend 55 of them defining the problem. And defining the problem means collecting and studying real evidence, not the overblown claims of an industry that has fought the introduction of every new technology that has turned out, in the end, to grow their business rather than threaten it.

He also has a final suggestion that may seem unrelated, but is actually directly at issue:

If Congress and the White House really want to fight pirates who are hurting the economy, they should be working to rein in patent trolls. There, the evidence of economic harm is clear, in multi-billion dollar transfers of wealth from companies building real products to those who have learned how to work the patent system while producing no value for consumers.

But, of course, that will never happen. That's because a totally useless "patent reform bill" passed a few months ago, and Congress and the President now consider that problem "done." And that's even though nothing in the bill actually addressed the issue of patent trolls, which has been a huge problem, and has hit many of the new businesses that are needed to build the innovations that will help the old guard in the content industry adapt. Hell, just look at Spotify. Days after being introduced in the US... it was sued for infringement.

So, the real response to the White House should be that it's time to stop making this a faith-based debate. Let's focus on the actual evidence, and define what the actual problem is. Because if it's (as all the evidence shows) a business model problem, not a legal or enforcement problem, pushing forth new regulation is not going to be the answer.

Filed Under: business models, copyright, economics, internet, laws, legislation, pipa, protect ip, protectionism, regulation, sopa, tim o'reilly, white house