Just Add Diesel: How Unintended Consequences Rob Taxpayers Blind

from the regulatory-mess dept

One of the reasons we're often skeptical of legislative/regulatory solutions to things is that they almost always have unintended consequences that do a lot more harm than good -- and quite often those unintended consequences are the exact opposite of what the regulation was supposed to do. Tim Lee points us to an excellent, if depressing, example. A few years back, the government passed a bill to encourage "greener" transportation by providing tax credits for the use of alternative fuels -- including for the use of fuel mixtures that combined alternative fuels with gasoline or diesel. As Chris Hayes explains, this resulted in America's paper companies suddenly dumping diesel into their production process solely to qualify for the tax credit.

The end result is staggering. The paper companies are wasting diesel fuel (remember, the whole point of this bill was to decrease the use of such fuels) by adding it to a process even though it's entirely unnecessary, and then claiming the tax credit. And, boy, is it worth it. The top ten paper companies are likely to take in $8 billion dollars from this tax credit. The money coming from this is so valuable that it dwarfs the actual paper business. The industry is making a lot more money throwing diesel fuel away than actually selling paper. And that is a perfect example of why even the best intentioned regulators often end up doing an awful lot of damage.

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New Jersey The Latest To Try To Regulate Social Networks... For The Children

from the please-make-it-stop dept

We've seen a number of attempts by politicians to use the latest "moral panic" around social networks to pass regulations against them. A popular one at the federal level which still (thankfully) has gone nowhere is DOPA, which would require schools and libraries to block social networks. However, state politicians want to get in on the grandstanding as well. Politicians in New Jersey are pushing a law that would require social networks to include a "report abuse" button on web pages and then would make those social networks responsible to investigate each reported "abuse" or face liability.

The unintended consequences of such a law would be awful. Basically, to protect liability, many "social networks" (and the term may be broadly applied to an awful lot of websites out there today) would most likely just shut down the accounts of those accused of "abuse." From a simple liability standpoint that makes sense. Leaving the account up just opens you up to a lawsuit. Furthermore, the button would likely be abused itself. Don't like someone? Click the "report abuse" button! And, no matter what, it makes no sense to put the burden of investigating things on the sites themselves. Hopefully this law goes nowhere, but don't be surprised to see similar proposals pop up elsewhere as well.

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ISPs Fear SAFETY Act Outlaws Email; While RIAA Thrilled They Can Use Retained Log Files For Anti-Piracy

from the not-so-good dept

Last week, in talking about the misleadingly named Internet SAFETY Act, we focused on how it would most likely require home internet users to retain log files of everyone who connected to their network. Now, others are pointing out two equally annoying consequences (intended or not) of the bill's current wording. First off, ISPs are noting that, based on the current wording of the bill, providing email is effectively outlawed, as it says that anyone that "facilitates access to" child pornography can be fined and imprisoned. ISPs note that email is a commonly used tool to access child pornography. And, yes, while it's clearly not what is intended by the law, we've certainly seen prosecutors looking to bring someone down willing to use ridiculous interpretations of a law.

On top of that, people are noticing that this bill, if turned into a law, would also greatly help the RIAA and the MPAA who would gleefully use those log files to go after more file uploaders. In fact, the RIAA and MPAA have been huge supporters of stronger data retention rules for years. Of course, the longer you keep log files, the more likely it is that there will be massive privacy breaches, but it seems clear that the RIAA and MPAA aren't particularly concerned with privacy, if it means their dying business models can be propped up for another few weeks.

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Another Accounting Law Designed To Increase Transparency Does The Opposite

from the unintended-consequences dept

With all of the financial mess out there, it's likely that we'll soon see calls for new regulations to help "protect" against fraud. However, before we rush into doing so, it's worth looking at how damaging previous attempts to do the same thing have been. We've already covered the massive amount of damage done by Sarbanes-Oxley, which basically made it extremely difficult for a private company to go public and significantly increased costs for any public company -- all while doing next to nothing to actually cut down on fraud.

And, now, FAS 157 has come into play -- a new rule impacting many venture capitalists, forcing them to figure out what the "fair market value" of their investments are, and provide that number to their investors. This has many different VCs complaining about what a stupid process this is. It raises similar questions as the legal change a few years ago that required companies to put stock option valuations on their books as well. The problem is that these things are impossible to accurately value. Not difficult, but impossible. You're asking people to value a totally illiquid asset as if it were liquid.

Even if the venture capitalists use a rigorous process, the result will be wrong. There's simply no way to accurately value something like a private startup until another transaction happens where the value is actually set. And, that's the way it should be for a private investment (it's also why not everyone is allowed to invest in such endeavors, because it is inherently more risky). But forcing companies to make up bogus (no matter how well meaning) valuations for companies has dangerous unintended consequences. No matter how bogus the numbers are, since they're there, people will use them as if they're real. And that will lead to more bad investing, rather than less. So, once again, we have a law designed to stop bad investing, which will most likely cause the opposite to occur.

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More Silly Restrictions Will Limit Team Obama's Ability To Communicate

from the don't-let-the-lawyers-govern dept

While there are some indications that newly inaugurated President Obama is going to be able to keep his Blackberry (or some other device) to communicate with the outside world, similar "restrictions" are being used to curtail his staff's ability to communicate. Specifically, staffers have been told they have to give up instant messaging. The reasoning, once again, comes down to the lawyers, and that records need to be kept of all written communications in the White House, according to the Presidential Records Act. However, it's seriously (and reasonably) pissing off Obama staffers who have come to rely on IM as a very efficient way to communicate and get stuff done.

It's really sad when efficiency is getting stifled by lawyers, though it happens all too often. Why not just make it clear to staffers to consider the fact that everything they instant message may be seen on CNN the next day, and tell them it's their responsibility to use the tools effectively? This is the federal gov't we're talking about. Why are they being treated like grade school kids? The purpose of the Presidential Records Act is to increase transparency in government. But, like so many unintended consequences of regulations, it's doing the opposite. It's driving people to use less efficient and less useful tools of communication to decrease transparency.

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Why The Lori Drew Ruling Could Put More Kids At Risk

from the perverse-incentives dept

We have some serious problems with the implications of the ruling in the Lori Drew case, where Drew was found guilty of computer hacking, because a fake MySpace profile (which she did not sign up for) was blamed for the suicide of a young girl. However, Bennett Haselton, over at Slashdot takes on another problematic aspect of the case: how the ruling creates perverse incentives that could lead more kids to harm themselves. That's because Drew was punished not because of her own actions, but the actions of Megan Meier, possibly due to what Drew (or others) said to her. As such, the ruling effectively says that if a kid does something bad enough or dangerous enough, it's fine to blame someone else for saying something to them. That means if there's a kid who wants to punish someone for saying something mean to them, they can try to kill themselves, and then blame whoever said something mean to them, recognizing they're likely to get punished. It creates dangerous incentives when your punishing someone based on the actions of the actions of someone else.

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Should Internet Censors Be Responsible For Breaking Stuff?

from the important-questions dept

In the wake of the UK Internet Watch Foundation's block of a particular Wikipedia page for what it claimed was illegal child pornography, and the group's subsequent reversal of that decision, the EFF is now asking will IWF be held responsible for the unintended consequences of its unregulated ability to ban websites? In this case, the action lead to a chain of events that blocked a significant number of UK Wikipedia users from being able to edit any page on the site. The EFF points out that the IWF's reversal on the ban was for all the wrong reasons: rather than it being because the image was old or widespread -- the group never should have put up the ban in the first place, recognizing that Wikipedia's open group review process is a lot more effective than IWF's arbitrary and secretive process.

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Study Reveals Shocking News: People Ignore The Speed Limit

from the they-needed-a-study-for-that? dept

For those of you who never have actually been in a car, some researchers have now revealed the obvious: most drivers are comfortable ignoring the speed limit. Of course, what's more interesting is the theory for the reason behind this: it's an unintended consequence of the decision by the federal government to mandate a nationwide 55mph speed limit back in 1974. Setting such an artificially low speed limited basically made people realize that speed limits had little, if any, relationship to actual safety regulations, and felt more comfortable trusting their own judgment in terms of what speed was safe for driving. Thus, now, even if speed limits were set to match safety levels, many people would still ignore them because they've learned that speed limits are somewhat meaningless. Yet another example of unintended consequences that result from bad legislation.

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A History Lesson For Those Advocating Network Neutrality Laws

from the unintended-consequences dept

Over at News.com, Declan McCullagh writes that Barack Obama's election as the next president of the United States has bolstered the hopes of those hoping to impose network neutrality regulations on the Internet. While Obama's key advisors have been cagey about precisely what the new administration's stance on the issue will be, it's a safe bet that we'll be hearing a lot about the issue in the coming months. This seems like a good time for a long-overdue conclusion to my ongoing series on network neutrality regulation.

One of the things that has been missing from the network neutrality debate has been a sense of how it fits into the broader history of government regulations of network industries. It's easy to imagine that the Internet is so new and different that historical comparisons just aren't relevant. But as we've seen with copyright and patent debates, we can learn a lot from historical experiences that may not seem immediately relevant.

I think this is equally true in the network neutrality debate. While the specifics of network neutrality are unlike anything that has come before, the general principles involved—non-discrimination, competition, monopoly power, and so forth—have actually been with us for more than a century. Indeed, today's network neutrality debate bears a striking resemblance to the debate that led to the very first American regulatory agency: the Interstate Commerce Commission, which was created to regulate the railroad industry.

The railroad industry was the high-tech industry of its day, and it had many of the same kinds of transformative effects on the 19th Century American economy that the Internet is having today. As with today's Internet, some parts of the railroad market were highly competitive, while other markets were served by only one or two firms. And people had concerns about the behavior of the largest railroad firms that echoed those that people have about large Internet providers today: that they restrict competition, discriminate among customers.

In 1887, Congress passed legislation (you can read an abridged version here) that is strikingly similar to the proposed network neutrality legislation that we're debating today. The Interstate Commerce Act declared it illegal to charge different prices to different customers for "the transportation of a like kind of traffic under substantially similar circumstances and conditions." It also said that railroads may not "make or give any undue or unreasonable preference or advantage to any particular person, company, firm, corporation, or locality, or any particular description of traffic." Compare that to the leading network neutrality proposal during the last Congress, which would have required network providers to deliver content on a "reasonable and nondiscriminatory" basis without imposing "a charge on the basis of the type of content, applications, or services made available."

Unfortunately, the story of the Interstate Commerce Commission does not have a happy ending. Grover Cleveland appointed a railroad ally named Thomas M Cooley as the first chairman of the ICC. The ICC was widely regarded as toothless for its first couple of decades, largely rubber-stamping railroad industry decisions. Things got even worse after the turn of the century, when the ICC began actively discouraging competition in the railroad industry. The ICC had the power to decide when new firms were allowed to enter the railroad industry, and by the 1920s, the FCC was actively working to discourage competition and push up railroad rates. In the 1930s, the ICC gained authority over the infant trucking industry, and used its authority to slow the growth of the trucking industry to protect the railroads from competition. By 1970, things had gotten so bad that a Ralph Nader report described the ICC as "predominantly a forum at which transportation interests divide up the national transportation market."

What went wrong? The story is too long and complicated to fully describe in a blog post, but I think there are two key lessons. First, the authors of the ICA dramatically underestimated the complexity of the railroad industry and the difficulty of government oversight. One of the reasons the ICC was relatively toothless in its early years is that it was completely overwhelmed with paperwork, as dozens of railroads sent it information about thousands of routes. The railroad industry was simply too complex and dynamic for a few Washington bureaucrats to even understand, to say nothing of regulating them effectively.

Second, the ICC's failure is a classic example of what economists call "regulatory capture": the ability of special interests to gain control of the regulatory process and use it to their advantage. Because the railroads cared more about railroad regulation than anyone else, they were adept at getting their allies appointed to key positions at the commission. Over time, the ICC not only ceased to be an effective watchdog of consumer interests, but actually began actively defending the interests of the railroads at consumers' expense. For about six decades—from about 1920 to 1980—the ICC pursued policies that reduced competition and raised prices in the railroad industry. And when trucking emerged as a potentially disruptive innovation, the ICC helped to limit its growth and slow the corresponding decline of the railroad industry.

The story of the ICC is not an isolated case. Similar stories can be told of the Civil Aeronautics board, which limited competition in the airline industry until the 1970s. And, of course, there's the example of that the FCC actively promoted AT&T's monopoly in the telecommunications market until it was broken up in 1984.

We can certainly hope that Congress has learned from the experiences of the 20th century and will avoid the most egregious mistakes it made in the 20th century. But it's worth remembering that many of the conditions that led to the ICC's problems are still with us. Today's FCC, like the ICC of the 20th Century, has a revolving door between the commission and the firms they regulate. And the Internet, like the railroad industry of the 19th century, is extraordinarily dynamic and complex. As a result, there's a real danger that if Congress gives the FCC the power to regulate the Internet, it will make things worse, either because it cannot keep up with the Internet's rapid evolution, or because industry incumbents will succeed in getting their own allies in key positions within the commission. Either way, the results could be very different from what network neutrality proponents are hoping for.

Timothy Lee is an expert at the Insight Community. To get insight and analysis from Timothy Lee and other experts on challenges your company faces, click here.

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Amazing, But True: FTC Doesn't Want To Rush Into National Privacy Standards

from the good-for-them dept

While there are plenty of gov't agencies that seem to rush into any chance to add more regulations that grant them more power, the FTC has a history of being quite reasonable and quite conservative about these things. You may recall that years ago, the FTC was against the idea of CAN-SPAM because it would effectively legalize plenty of spam, with one FTC commissioner noting that spam should be anything that you don't like -- and legislating against that is next to impossible. Specifically, he was worried (correctly, it appears) that in allowing lawmakers to define spam, it has merely opened up more possibilities for spamming.

That commissioner (Orson Swindle) is no longer with the FTC, but the Commission seems equally skeptical of any sort of national privacy standards, noting that any set standards would deal with the market we see today, not the markets of tomorrow, and that could create serious unintended consequences. It's so rare these days to see federal agencies not leap forward to try to regulate, and to actually worry about the unintended consequences of regulating too soon, that it's rather refreshing.

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Dear Viacom: It's In Your Best Interest To Lose The YouTube Lawsuit

from the a-million-tiny-YouTubes... dept

I almost hate to start off with a Star Wars quote, but it's impossible to resist on this story. In the original Star Wars movie, Obi-Wan Kenobi has the infamous line: "If you strike me down, I shall become more powerful than you could possibly imagine." That same message was suggested to the RIAA before it successfully "won" its lawsuit against Napster. But that "win" turned out to be quite the Pyrrhic victory in the end. Rather than killing off unauthorized file sharing, it merely splintered it, into many more systems -- many of which were further underground, making it harder and harder to try to keep track of it, or come up with any real way to embrace it and take advantage of it. And, every time the industry crushes another file sharing service, many more rush in to take up the slack. The end result is that the amount of unauthorized file sharing just continues to increase -- and now the industry is left trying to figure out how it can possibly embrace the mess that it helped create.

The same thing has the potential to happen with Viacom and YouTube. We've already discussed the latest back-and-forth in that lawsuit, but Cord Bloomquist makes a very interesting point: Viacom would probably be better off if it lost. That's because online video won't go away... it will just splinter and move further underground. It won't cut down on videos being available online -- or even how many people are watching those videos (if history is any indication, the opposite will happen). But what it will do, it make it that much more difficult for Viacom to figure out ways to embrace the trend and actually make more money off of it.

I was having some conversations over the weekend with some folks who think that Viacom probably realizes this -- and that it just filed the lawsuit against Google as the first (heavy-handed) step in a "negotiation" to get Google to settle and pay up. What it didn't count on (despite it being discussed widely) was that Google is not only willing to take these cases as far as they go, but it wants to do so, to put in place serious and useful case law to avoid these types of lawsuits in the future. So, the real question then becomes whether or not Viacom really recognizes this, and if it's even possible for the company to back out gracefully.

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The Next Generation Of Anti-Piracy Legislation Goes To School

from the beware-the-precedents-you-set dept

As discussed a few months ago by Tom Lee, misguided anti-piracy requirements for universities found their way into the College Opportunity and Affordability Act of 2007. Mostly, the nearly 800-page bill rehashes existing legislation regarding federal financial aid. However, a section titled "Campus-based Digital Theft Prevention" provides an unfortunate glimpse at what could be the new wave of legislation related to network filtering of copyrighted material inside and outside the academic domain, that’s waiting in the wings.

The bill, in its current form, outlines that eligible institutions "develop a plan for offering alternatives to illegal downloading or peer-to-peer distribution of intellectual property as well as a plan to explore technology-based deterrents to prevent such illegal activity." While advocates emphasize that the only requirement is to plan, the wording leaves the door to state mandated copyright protections in exchange for federal funding wide open... a truly backwards and illogical arrangement. In this case, congressional requirements will most likely take the form of industry-sanctioned DRM initiatives, in addition to network detection/filtering techniques laden with privacy risks and prone to the inevitable backlash of technological countermeasures.

The link between failing to draft plans and eligibility for at least some student financial aid programs is most troubling because it does not address the inherently complex nature of piracy and copyright infringement in the 21^st century. Instead it seeks to place the onus on university administrators, who are already in the midst of coming to grips with effective digital threat prevention. Introducing this type of government intervention does nothing to stimulate the desperately needed innovative solutions for the issues at hand. Also, from a policy perspective, the networks on campuses across the country differ mainly in scale from those governed by the likes of the Verizon and Comcast, meaning that a disconcerting and inappropriate model for anti-piracy legislative action is being shaped.

In the same way that universities provide an environment where some of the leading minds of the tomorrow’s society are shaped, specious legislative action that effects their rights as downloaders will impact their expectations of how privacy and civil liberties should be transposed to an increasingly digital world. It shouldn’t be left for the conspiracy theorists to suggest that this will begin the prying open of a Pandora’s Box of well-meaning public policy that falls short due to short-sighted intentions and narrow perspectives on the matters at hand.

Yet, in spite of these frightening possibilities combined with the fact that electronic piracy is fast on its way to becoming a hot-button issue, Congress doesn't appear to have any clue about the inappropriateness of these measures. That means, unfortunately, that it is unlikely they will support any sustained effort to remove the aberrant mandate. There are options that don't resemble placing economic sanctions on institutions of higher learning -- but it doesn't appear Congress is interested in pursuing them any time soon.

Alex Fletcher is an expert at the Insight Community. To get insight and analysis from Alex Fletcher and other experts on challenges your company faces, click here.

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Unintended Consequences Of Technology On Distance And Global Communications

from the good-and-bad dept

We tend to be in the camp that believes technology is neither inherently good nor inherently bad -- but, rather, is a tool that can be used for both good and bad purposes. However, we are certainly big believers in the law of unintended consequences. No matter how much you think through how technology will impact something, you can almost never predict many of the resulting consequences (again, for both good and bad purposes). Jeremy Wagstaff has a fantastic post pointing to two articles that highlight these unintended consequences (both good and bad) when it comes to distance and communication. The first article is about how African refugees seeking to get to Europe now find it much easier thanks to GPS. Thanks to GPS, many are now setting sail for the Canary Islands, 60 miles of the coast of Africa. Without GPS, it was quite difficult to find the small islands -- but no longer. No matter what the legality of the situation is, as Wagstaff notes, GPS technology has just made distance much shorter for many Africans seeking to get out. It's unlikely anyone ever thought of that when they were designing GPS systems.

The second article suggests that all the modern communication equipment soldiers get to lug around these days could explain why US soldiers are having so much trouble relating to locals in Iraq and Afghanistan. The article focuses on 11 US airmen who were stranded in Borneo during World War II, without contact to the outside world. They quickly learned to adapt to their surroundings, learning the local language and communicating and respecting the local natives who then were an effective force in fighting off the Japanese on the island. The article suggests that thanks to advanced electronic communication tools, our soldiers today are always tethered back to other Americans, and never need to really get to know the people in the regions where they're fighting, meaning they're less able to relate to them or get along with them, in part as an unintended consequence of having all that communications technology available. It's not too hard to see how this could be true. It is always easier to fall back to communicating with people you know or who speak the same language you do and observe the same customs. While this certainly isn't to condemn the use of communications technology, it is worth noting the unintended consequence of it, especially in thinking about how we continue to relate to other cultures around the globe.

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