FC: Free-market economist replies to Robert Gellman privacy paper

From: Declan McCullagh (declanat_private)
Date: Thu Mar 28 2002 - 06:03:49 PST

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    Previous Politech message:
    "No broad U.S. privacy laws costs 'tens of billions,' study says"
    Robert said he's declined to debate because an email debate on this broad 
    subject will miss the essentials and will not be enlightening.
    From: myselfat_private
    Date: Wed, 27 Mar 2002 21:54:40 -0500 (EST)
    To: Declan McCullagh <declanat_private>
    Subject: FC: No broad U.S. privacy laws costs "tens of billions," study says
     >Do any of the authors of the "business privacy papers"
     >(probably better characterized as free-market privacy
     >papers) want to reply?
    I am not an author of one of the business privacy papers, but I
    am a free-market economist and entrepreneur. I would like to
    The paper describes privacy as an "elusive, value-laden concept".
    Robert Gellman is wrong: privacy is a straightforward concept,
    but people like Gellman refuse to discuss the situation in
    anything other than elusive, value-laden terminology.
    Take the following paragraph as an example:
     >Supermarket frequent shopper cards and other registration
     >and monitoring programs coerce consumers to sell their
     >personal information for lower prices at the cash register.
     >Customers unaware of or unwilling to sign up for these
     >programs often pay more.
    "Coercion" is a strong, value-laden word. Frequent shopper cards
    are a straightforward business proposition. Due to advanced
    technology, it costs less to service customers that reveal
    private information, cost savings that can be passed along to
    Gellman asserts, with no proof, that if frequent shopper cards
    were outlawed, then all customers would get the same low prices.
    Free-market economists assert the opposite, that all customers
    would get the same high prices.
    Gellman concludes: "The higher prices paid by those who reject
    frequent shopper cards represent a direct financial sacrifice
    for privacy."
    A free-market economist might conclude: "The lower prices paid
    by those who use frequent shopper cards represent a direct
    financial benefit for disclosing private information."
    Notice the circular nature of the arguments. Gellman's premise is
    that it costs money to protect privacy, and he uses that
    to show that protecting privacy costs money. His entire paper is
    the same circular logic.
    There is a much more basic disagreement here: "authoritarianism"
    vs. "libertarianism". The authoritarian believes that if everyone
    were presented with the same information, they would make the
    same choice. In Gellman's case, he believes that all people value
    their privacy the same. Libertarians hold the opposite view, in
    this case, that nobody values privacy the same amount: some
    don't care, but some are privacy paranoids.
    This is the circular argument going on Gellman's mind. He thinks
    that everyone values privacy as much as he does. He can't
    conceive of the idea that some people value it less. The obvious
    conclusion is that if people use frequent shopper cards, then it
    must be because they are being coerced against their will.
    Governments have guns, businesses don't. However, Gellman believes
    that businesses have voodoo powers to coerce the population that
    are just as powerful as guns. This is obvious to him, because
    consumers are clearly making the "wrong" choice when they sign up
    for frequent shopper cards; consumers are clearly being coerced.
    The following quote from Gellman is interesting:
     >Some narrow-minded economists focus only on the goal
     >of lowering business costs of customer surveillance.
     >These economists pay no regard to the social consequences.
     >The expansion of personal information trafficking
     >possible with new technology could lead to a future that
     >will make George Orwell seem like an optimist.
    The way that "narrow-minded" free-market economists measure
    "social consequences" is to put a dollar value on them. The reason
    is that every consumer values such consequences differently; you
    can't apply a single value for everyone. The way to measure the
    social consequences is not to assume the values you want, but
    to use the dollar value consumers are putting on them.
    In other words, the economist might note that the consumer can
    save $1.50 with a grocery purchase. Therefore, consumers with
    frequent customers cards value their privacy at less than $1.50,
    and consumers without cards value their privacy at more than
    $1.50. Gellman doesn't believe this amount, and thinks
    card-carrying consumers value their privacy at a much greater
    amount, but that somehow the business is coercing them.
    QED: the free-market economist must be wrong, there must be some
    social consequence to this transaction that is not being measured
    by that $1.50.
    If Gellman gets his way, he passes laws to adjust for the
    imbalance. If Gellman is right, then this isn't bad, but if the
    free-market economist was right and if the privacy was really
    worth only $1.50, then we have an Orwellian society where guns
    coerce people.
    By the way, we still haven't left the realm of circular logic.
    Gellman is afraid of me because he thinks my policies will lead
    to an Orwellian society led by business. I fear Gellman because
    I think his policies will lead to an Orwellian society led by
    I'm not so much trying to refute Gellman directly so much as
    point out that there is nothing to refute. His conclusions are
    drawn from his premises; but since he draws his premises from
    his conclusions, he has a circular argument. There is no way to
    evaluate his claims without stepping outside that circle. On the
    other hand, free-market economics is likewise circular. To step
    outside of Gellman's circle, you would have to spend a
    considerable time understanding an entire new perspective on
    life, a new set of values.
    You can pick any arbitrary paragraph from his document, and I
    can "refute" it not by challenging his logic, but proposing a
    new set of premises, premises made by free-market economists.
    For example, consider the following statement (I picked this one
    at random):
     >It is impossible to say how the Internet might have
     >developed if it were imbued with strong privacy protections
     >from the start.
    What he is trying to say is that maybe there wouldn't have been
    so many dot-com failures if consumers trusted businesses not to
    abuse their private information. He has statistics throughout his
    document to support the argument.
    On the other hand, the basic assumption of free-market economics
    is that government regulations have unintended consequences that
    hinder business development. They believe that the Internet was
    such an incredible phenomenon precisely because it was
    This puts us right back to circular arguments. Authoritarians
    claim that the Internet wouldn't have any of its problems if only
    it were better regulated. Libertarians claim the Internet
    wouldn't have any of its benefits if it were regulated more.
    Gellman has a list of things and their cost breakdowns in order
    to show how much pro-privacy people have to pay in order to
    protect their privacy. However, I am more pro-privacy than
    anybody I know but I don't do any of those things.
    This is because I try to protect my anonymity rather than
    protect my privacy.
    Anonymity on the Internet is really easy. First step is to get an
    "anonymous" credit card. The easiest way to do this is create a
    sole-proprietorship LLC. This is company that is essentially
    you; instead of filing a company tax return, you file its
    information along with your normal tax return. The advantage is
    that it gives you a separate tax ID number that you can use for
    credit card applications. You can likewise get a bank account
    under the company's name. There are many postal companies (e.g.
    "Mailboxes Etc.") that will give you a valid looking mailing
    address that is the same as a post office box. They will even
    forward the mail to you (for a fee, though it isn't much). You
    can also get anonymous e-mail accounts.
    The upshot is that you can order books from Amazon.com, make
    purchases on eBay, or interact with normal businesses in normal
    ways. All these things are tied to the corporate entity, not you
    personally. When you get tired of the junkmail and spam, just
    change your addresses or reconstitute the company. The only
    downside is that you won't be building up credit since the
    credit bureaus cannot track you (you'll have to have one normal
    credit card that you use occasionally).
    Back to circular logic: Gellman's premise is that all people will
    protect privacy the same way. My premise is that everybody wants
    different ways of protecting their privacy. I fear whatever laws
    Gellman proposes because he will force his vision of privacy on
    my life. For example, my kind of anonymity is either outlawed or
    prohibitive in Europe (e.g. France outlaws anonymity, most
    countries charge thousands of dollars to start a business rather
    than the $15 that I'm charged).
    Robert Graham
    PS: You can send comments to: gellman-commentsat_private
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