Soapbox

Economists use the term “ externality” to describe a situation where economic agents’ decisions are distorted by the fact they do not have to pay for some of the costs of their actions. This is usually addressed by regulation. The textbook example is pollution, but I find security to be at least as interesting.

In the US, the level of security associated with credit cards and credit reporting is abysmal. Most of Europe has switched to smart cards for their credit cards over a decade ago, leading to a much more secure system for offline purchases (which must be authenticated by the smart card and a PIN), rather than easy to tamper magnetic strips (which are kept, to allow visiting US tourists to make purchases). As the PIN code must be entered by the cardholder, a waiter in a restaurant verifies the card at the dining table and does not have the opportunity to engage in skimming.

There is usually no national credit bureau equivalent to Experian, Equifax or Trans Union in most European countries, because these would fall afoul of privacy laws. For this reason, credit card fraud is much rarer in Europe than in the US, and identity theft is almost unheard of.

In both cases, the externality is lax security, leading to lost time for consumers, whether simply an annoyance (credit card fraud) or a serious nightmare (identity theft). Credit reporting services do not bear most of the cost of identity theft, the hapless victims do. For online purchases, merchants are liable for fraud they have limited means to detect, and to add injury to insult, they also have to pay fees for the chargeback. Credit card companies figure the cost of processing claims and absorbing what little fraud they are liable for is less than the cost of upgrading the whole card reader infrastructure to use smart cards. They also think keeping perfunctory verification procedures will reduce barriers to impulse spending and thus increase profits.

They can do this, of course, because industry lobbying groups have been very effective at defeating consumer-friendly legislation in Congress or state legislatures. The time for action has come, however, because credit card fraud is now a primary source of funds for terrorists, whether abroad or in the US. To quote an interesting article in The Economist, it seems Al-Qaeda sometimes acts as a kind of venture capitalist for terror:

Units of his organisation are believed to raise money through financial and other sorts of crime. For example, Ahmed Ressam, an Algerian who plotted to bomb Los Angeles airport but later co-operated with American authorities, says he was given $12,000 of seed-money to set up his operation. When he asked for more cash, he was advised to finance himself by credit-card fraud.

For the sake of all, the credit industry cannot be allowed to continue in its complacent ways any more.

Updated 2003-06-02 following comments from “Saffiyya” regarding merchant liability

Eric S. Raymond is a celebrity of sorts in the open source world. He is mostly self-aggrandizing, having to his credit a couple of books and two minor email utilities.

A side of him not many geeks are aware of is his frothing-at-the mouth diatribes such as this one. As a person of Indian ancestry, I was tickled by one of the more laughable assertions in this collection of racist and bigoted remarks, that the British somehow “civilized” India, which had highly evolved cities with refinements like sewers in a civilization that dwarfed Egypt 5000 years ago.

British colonialism had everything to do with the extraction of resources through the sheer application of violence (as in their invention of concentration/extermination camps during the Boer war, their ruthlessly efficient genocide in Tasmania, the Opium wars or the Amritsar massacre), not any Kiplingian post-facto rationalizations of a supposed civilizing mission.

I won’t dignify the rest of his viscerally anti-muslim prejudice with comment, but this raises an interesting point. Raymond is a techno-anarchist libertarian, and a neo-paganist. As such, his profile looks very similar to that of the Dutch fascist Pim Fortuyn. There was certainly too much indulgence for Fortuyn’s racist rhetoric and proposed policies simply because he was homosexual, a perfect illustration of what Bertrand Russell called the “fallacy of the moral superiority of the oppressed”.

A San Francisco judge has thrown out a ballot initiative, “Care not Cash”, voted by a 60% margin last November, saying only county representatives (i.e. the San Francisco Board of Supervisors) have authority to define welfare standards.

While I have my own doubts about that welfare reform package, I find curious to say the least the idea that elected representatives have higher sovereignty than the people they derive their legitimacy from.

Update (2003-09-18):

The San Francisco board of supervisors has killed the measure. Contempt for voters is not the exclusive province of right-wingers, it seems.

Update (2004-04-30):

A state appeal court has reversed the decision, citing saying it was upholding the right of voters and exercising the court’s “duty to jealously guard the prerogative of initiative”. The wheels of justice grind exceedingly fine, but also exceedingly slowly

An excellent article in The Guardian summarizes the current attacks on politically inconvenient science in the US. It is instructive to compare this with Stalin’s USSR. The parallel is unfortunately too close for comfort.

Trofim Lysenko was an agronomist who devised a method to improve the yield of winter wheat, an important achievement in a country suffering from famine due in large part to criminally incompetent mismanagement by Communist central planners. He believed in a form of Lamarck’s theories, that basically species evolve by transmitting inherited characteristics, rather than by natural selection and survival of the fittest.

Lysenko led a series of attacks on genetics, beginning in the mid thirties and culminating with the purge of of the father of Soviet genetics, Nikolai Vavilov in 1940 (initially sentenced to death, he died in 1943 while in solitary confinement). Lysenko then assumed complete control over Soviet agronomical “science”, all modern genetics starting with Mendel’s laws were banned (some of Vavilov’s vital work on biodiversity survived, but is endangered today), and the most outlandish theories (like spontaneous generation of germs) promulgated.

The Communist regime found Lysenko’s theories congenial, as they offered the perspective of genetically improving homo sovieticus using the same brutal tactics applied to Russian arts, religion and history.

Vavilov was rehabilitated when Nikita Khrushchev came to power, but Lysenko managed to hold on, in part with flattery, in part with outright fraud to cover up his lack of results. He was finally sacked in 1965, when the damage he had done in thirty years became impossible to ignore.

From CNET News.com:

Flat-panel monitors to take market lead

Flat-panel monitors for desktop computers are expected to surpass traditional cathode ray tube monitors in revenue this year, a sea change for the display industry.

And a good thing too. CRT monitors contain large quantities of toxic materials such as lead, and their disposal comes at a terrible human cost. All my home desktop machines now have LCD monitors. If you are in the market for a monitor, please spend the extra $100 or so. Your eyes and the planet will thank you.