September 14, 2010

"The barons of the media [...] are the biggest beasts of the modern jungle", Tom Watson, a member of the British Parliament, deplores according to Sarah Lyall (*). This is the wrong lesson to take from the scandal uncovered by the New York Times on the aggressive privacy policies of the News of the World, a London based tabloid controlled by a competitor of the New York Times.

As Don Van Natta Jr., Jo Becker and Graham Bowley documented, "five people have filed lawsuits accusing [the corporate parent of] News of the World of breaking into their voice mail" (**). This, they hint, is but a sample of how it routinely stoked its circulation with illegal celebrity snooping.

That eprivacy is all about money could only be a reminder for slow learners. No, the real lesson is how flimsy the independence of the government has become in pronaocracies parading as democracies. Can it be a coincidence that Andy Coulson, under whose watch these abuses occurred, is now "head of communications" for the British government? Would Tom Watson whine, were he not today on the losing side of the warring lobbies?

The deeply ingrained corruption which attends pronaocracy does not even exempt benevolent social actors, as illustrated by Eric Lipton (***). "At least two dozen charities that lawmakers or their families helped create or run [...] accept donations from businesses seeking to influence them".

From this perspective, Gideon Rachman's portraiture of economists as vain intellectual lightweights with "regal pretensions" lacks mercy (****). Not so much kings as obliging puppets they, whose strings are pulled by the warring lobbies. Even hard sciences are prone to be conveniently idolized.

Still economists are the more actively exploited. The efficient market hypothesis is dead. Long live globalization! Why wouldn't those who do profit from it extoll the models economists build to demonstrate its benefits? Let hoi polloi overlook the understandable failure of such models to account for all international and domestic political realities accurately in the absence of a working world government. Isn't capitalism itself a proven utopia?

Favorably contrasting historians with economists, Gideon Rachman forgets some non Marxist historians have been too fond of theories of History while many economists are wise to the limit of their models. But he is quite right to insist on the impossibility of historians to settle "any big question" as "each generation will reinterpret the past and deliver its own verdict". Social sciences are indeed intrinsically reflexive. Economic agents, human beings remain free to flaunt any rule found about them. Students of history, what they find tells as much about them as about those they observe.

This unfortunate characteristic may make predictions hazardous to one's reputation. Reflexivity however opens the path to recursivity. There is for instance a History of how historians have studied History. What other job market promises such limitless avenues for growth? Not much has been made of the economics of economists but isn't business ethnology following the same path. It is in this spirit Gillian Tett looks at markets and comes up with such disquieting questions as "why ultra-fast trading is needed at all?" (*****).

How dare she? Were she an economist, her strings would be promptly pulled. High speed trading is needed by high speed traders, my dear Watson. In the modern jungle these beasts are pretty big too. In fact she comes close to answer her own question when she mentions "taking a Luddite sledgehammer to computers". Speed is actually a natural consequence of automation, the drug to which our society has become addicted.

In this instance viewing History as a helix helps provide both a past equivalent and the change brought about by modernity. I recently suggested that high speed trading was but a more efficient approach to Middle Eastern bargaining as practiced by Abraham himself.

Assuming I am right, it is hardly possible to go back to a time so remote Israel was not even born. Still one can see that those privileged participants able to use fake transactions on price markets so as to learn about the intentions of their counterparts as if they were engaged in value negotiations are but trading on insider information, albeit of a very clever kind. Rather than condemning speed per se, one may design rules to level the playing field until one realizes this would run contrary to the very essence of pronaocracies, i.e. the creation and defense of economic rents (1).

So I am left to savor the relative inefficiency which, I hope, will plagues privacy violations for a few more years.

Recall Andy Coulson's tenure at the News of the World. What labor to exploit "several thousand mobile phone numbers of potential victims and 91 mobile phone PIN codes"! True, Glenn Mulcaire, the subcontractor nailed and jailed for the deed, did not have to break into any apartment building like Nixon's plumbers. A little pretexting, as the one paid by Hewlett-Packard's chair, or the confidence game mastered by Pellicano can do the job.

Still the real productivity breakthrough will only come when Google and Facebook, with their massive market power over millions of individuals' private profiles, start offering collocation to high speed profile traders to the mutual benefit of all but the individuals whose profiles are on the line.

Google Instant is a step in the right direction. As Claire Cain Miller writes (******), "most people's lives will not change with an extra few milliseconds", not indeed when they lose seconds if not minutes on spam. But, for those able to afford the costs of collocation, what a potential one day for optimizing ad bets in real time in tandem with Google's computers while regular advertisers are not only forced "to bid for more common terms" but to do so with less information at their disposal.

Eric Schmidt has admitted harboring rogue programmers. Once collocation is established, how far is it from some rogue computers next to Google profile databases to engage in some "dark arts". It will take time to set up the necessary retail network and offshore intermediaries, but how about reselling the addresses of people searching for "Paris hotels" but not for "home sitters" to motivated, if slightly unscrupulous, louts living near by?

As a privacy advocate, I would not mind if my claim to Cassandra's mantel is in hindsight shown as good as macroeconomic models. But will it?

Philippe Coueignoux

• (*) ........... Britain: Phone Hacking Inquiry, by Sarah Lyall (New York Times) - September 10, 2010
• (**) ......... Hack Attack, by Don Van Natta Jr., Jo Becker and Graham Bowley (New York Times Magazine) - September 3, 2010
• (***) ....... Congressional Charities Pulling In Corporate Cash, by Eric Lipton (New York Times) - September 6, 2010
• (****) ..... Sweep economists off their throne, by Gideon Rachman (Financial Times) - September 7, 2010
• (*****) ... Real issue in high-frequency trading has been dodged, by Gillian Tett (Financial Times) - September 10, 2010
• (******) . Google Unveils Tool to Speed Up Searches, by Claire Cain Miller (New York Times) - September 9, 2010
• (1) Powerful interests are trying to control the market, by John Kay (Financial Times) - November 11, 2009