In the USA...
March 30, 2013State-Wrecked: The Corruption of Capitalism in America
By DAVID A. STOCKMAN
The Dow Jones and Standard & Poor’s 500 indexes reached record highs on Thursday, having completely erased the losses since the stock market’s last peak, in 2007. But instead of cheering, we should be very afraid.
Over the last 13 years, the stock market has twice crashed and touched off a recession: American households lost $5 trillion in the 2000 dot-com bust and more than $7 trillion in the 2007 housing crash. Sooner or later — within a few years, I predict — this latest Wall Street bubble, inflated by an egregious flood of phony money from the Federal Reserve rather than real economic gains, will explode, too.
Since the S.&P. 500 first reached its current level, in March 2000, the mad money printers at the Federal Reserve have expanded their balance sheet sixfold (to $3.2 trillion from $500 billion). Yet during that stretch, economic output has grown by an average of 1.7 percent a year (the slowest since the Civil War); real business investment has crawled forward at only 0.8 percent per year; and the payroll job count has crept up at a negligible 0.1 percent annually. Real median family income growth has dropped 8 percent, and the number of full-time middle class jobs, 6 percent. The real net worth of the “bottom” 90 percent has dropped by one-fourth. The number of food stamp and disability aid recipients has more than doubled, to 59 million, about one in five Americans.
So the Main Street economy is failing while Washington is piling a soaring debt burden on our descendants, unable to rein in either the warfare state or the welfare state or raise the taxes needed to pay the nation’s bills. By default, the Fed has resorted to a radical, uncharted spree of money printing. But the flood of liquidity, instead of spurring banks to lend and corporations to spend, has stayed trapped in the canyons of Wall Street, where it is inflating yet another unsustainable bubble.
When it bursts, there will be no new round of bailouts like the ones the banks got in 2008. Instead, America will descend into an era of zero-sum austerity and virulent political conflict, extinguishing even today’s feeble remnants of economic growth.
THIS dyspeptic prospect results from the fact that we are now state-wrecked. With only brief interruptions, we’ve had eight decades of increasingly frenetic fiscal and monetary policy activism intended to counter the cyclical bumps and grinds of the free market and its purported tendency to underproduce jobs and economic output. The toll has been heavy.
As the federal government and its central-bank sidekick, the Fed, have groped for one goal after another — smoothing out the business cycle, minimizing inflation and unemployment at the same time, rolling out a giant social insurance blanket, promoting homeownership, subsidizing medical care, propping up old industries (agriculture, automobiles) and fostering new ones (“clean” energy, biotechnology) and, above all, bailing out Wall Street — they have now succumbed to overload, overreach and outside capture by powerful interests. The modern Keynesian state is broke, paralyzed and mired in empty ritual incantations about stimulating “demand,” even as it fosters a mutant crony capitalism that periodically lavishes the top 1 percent with speculative windfalls.
The culprits are bipartisan, though you’d never guess that from the blather that passes for political discourse these days. The state-wreck originated in 1933, when Franklin D. Roosevelt opted for fiat money (currency not fundamentally backed by gold), economic nationalism and capitalist cartels in agriculture and industry.
Under the exigencies of World War II (which did far more to end the Depression than the New Deal did), the state got hugely bloated, but remarkably, the bloat was put into brief remission during a midcentury golden era of sound money and fiscal rectitude with Dwight D. Eisenhower in the White House and William McChesney Martin Jr. at the Fed.
Then came Lyndon B. Johnson’s “guns and butter” excesses, which were intensified over one perfidious weekend at Camp David, Md., in 1971, when Richard M. Nixon essentially defaulted on the nation’s debt obligations by finally ending the convertibility of gold to the dollar. That one act — arguably a sin graver than Watergate — meant the end of national financial discipline and the start of a four-decade spree during which we have lived high on the hog, running a cumulative $8 trillion current-account deficit. In effect, America underwent an internal leveraged buyout, raising our ratio of total debt (public and private) to economic output to about 3.6 from its historic level of about 1.6. Hence the $30 trillion in excess debt (more than half the total debt, $56 trillion) that hangs over the American economy today.
This explosion of borrowing was the stepchild of the floating-money contraption deposited in the Nixon White House by Milton Friedman, the supposed hero of free-market economics who in fact sowed the seed for a never-ending expansion of the money supply. The Fed, which celebrates its centenary this year, fueled a roaring inflation in goods and commodities during the 1970s that was brought under control only by the iron resolve of Paul A. Volcker, its chairman from 1979 to 1987.
Under his successor, the lapsed hero Alan Greenspan, the Fed dropped Friedman’s penurious rules for monetary expansion, keeping interest rates too low for too long and flooding Wall Street with freshly minted cash. What became known as the “Greenspan put” — the implicit assumption that the Fed would step in if asset prices dropped, as they did after the 1987 stock-market crash — was reinforced by the Fed’s unforgivable 1998 bailout of the hedge fund Long-Term Capital Management.
That Mr. Greenspan’s loose monetary policies didn’t set off inflation was only because domestic prices for goods and labor were crushed by the huge flow of imports from the factories of Asia. By offshoring America’s tradable-goods sector, the Fed kept the Consumer Price Index contained, but also permitted the excess liquidity to foster a roaring inflation in financial assets. Mr. Greenspan’s pandering incited the greatest equity boom in history, with the stock market rising fivefold between the 1987 crash and the 2000 dot-com bust.
Soon Americans stopped saving and consumed everything they earned and all they could borrow. The Asians, burned by their own 1997 financial crisis, were happy to oblige us. They — China and Japan above all — accumulated huge dollar reserves, transforming their central banks into a string of monetary roach motels where sovereign debt goes in but never comes out. We’ve been living on borrowed time — and spending Asians’ borrowed dimes.
This dynamic reinforced the Reaganite shibboleth that “deficits don’t matter” and the fact that nearly $5 trillion of the nation’s $12 trillion in “publicly held” debt is actually sequestered in the vaults of central banks. The destruction of fiscal rectitude under Ronald Reagan — one reason I resigned as his budget chief in 1985 — was the greatest of his many dramatic acts. It created a template for the Republicans’ utter abandonment of the balanced-budget policies of Calvin Coolidge and allowed George W. Bush to dive into the deep end, bankrupting the nation through two misbegotten and unfinanced wars, a giant expansion of Medicare and a tax-cutting spree for the wealthy that turned K Street lobbyists into the de facto office of national tax policy. In effect, the G.O.P. embraced Keynesianism — for the wealthy.
The explosion of the housing market, abetted by phony credit ratings, securitization shenanigans and willful malpractice by mortgage lenders, originators and brokers, has been well documented. Less known is the balance-sheet explosion among the top 10 Wall Street banks during the eight years ending in 2008. Though their tiny sliver of equity capital hardly grew, their dependence on unstable “hot money” soared as the regulatory harness the Glass-Steagall Act had wisely imposed during the Depression was totally dismantled.
Within weeks of the Lehman Brothers bankruptcy in September 2008, Washington, with Wall Street’s gun to its head, propped up the remnants of this financial mess in a panic-stricken melee of bailouts and money-printing that is the single most shameful chapter in American financial history.
There was never a remote threat of a Great Depression 2.0 or of a financial nuclear winter, contrary to the dire warnings of Ben S. Bernanke, the Fed chairman since 2006. The Great Fear — manifested by the stock market plunge when the House voted down the TARP bailout before caving and passing it — was purely another Wall Street concoction. Had President Bush and his Goldman Sachs adviser (a k a Treasury Secretary) Henry M. Paulson Jr. stood firm, the crisis would have burned out on its own and meted out to speculators the losses they so richly deserved. The Main Street banking system was never in serious jeopardy, ATMs were not going dark and the money market industry was not imploding.
Instead, the White House, Congress and the Fed, under Mr. Bush and then President Obama, made a series of desperate, reckless maneuvers that were not only unnecessary but ruinous. The auto bailouts, for example, simply shifted jobs around — particularly to the aging, electorally vital Rust Belt — rather than saving them. The “green energy” component of Mr. Obama’s stimulus was mainly a nearly $1 billion giveaway to crony capitalists, like the venture capitalist John Doerr and the self-proclaimed outer-space visionary Elon Musk, to make new toys for the affluent.
Less than 5 percent of the $800 billion Obama stimulus went to the truly needy for food stamps, earned-income tax credits and other forms of poverty relief. The preponderant share ended up in money dumps to state and local governments, pork-barrel infrastructure projects, business tax loopholes and indiscriminate middle-class tax cuts. The Democratic Keynesians, as intellectually bankrupt as their Republican counterparts (though less hypocritical), had no solution beyond handing out borrowed money to consumers, hoping they would buy a lawn mower, a flat-screen TV or, at least, dinner at Red Lobster.
But even Mr. Obama’s hopelessly glib policies could not match the audacity of the Fed, which dropped interest rates to zero and then digitally printed new money at the astounding rate of $600 million per hour. Fast-money speculators have been “purchasing” giant piles of Treasury debt and mortgage-backed securities, almost entirely by using short-term overnight money borrowed at essentially zero cost, thanks to the Fed. Uncle Ben has lined their pockets.
If and when the Fed — which now promises to get unemployment below 6.5 percent as long as inflation doesn’t exceed 2.5 percent — even hints at shrinking its balance sheet, it will elicit a tidal wave of sell orders, because even a modest drop in bond prices would destroy the arbitrageurs’ profits. Notwithstanding Mr. Bernanke’s assurances about eventually, gradually making a smooth exit, the Fed is domiciled in a monetary prison of its own making.
While the Fed fiddles, Congress burns. Self-titled fiscal hawks like Paul D. Ryan, the chairman of the House Budget Committee, are terrified of telling the truth: that the 10-year deficit is actually $15 trillion to $20 trillion, far larger than the Congressional Budget Office’s estimate of $7 trillion. Its latest forecast, which imagines 16.4 million new jobs in the next decade, compared with only 2.5 million in the last 10 years, is only one of the more extreme examples of Washington’s delusions.
Even a supposedly “bold” measure — linking the cost-of-living adjustment for Social Security payments to a different kind of inflation index — would save just $200 billion over a decade, amounting to hardly 1 percent of the problem. Mr. Ryan’s latest budget shamelessly gives Social Security and Medicare a 10-year pass, notwithstanding that a fair portion of their nearly $19 trillion cost over that decade would go to the affluent elderly. At the same time, his proposal for draconian 30 percent cuts over a decade on the $7 trillion safety net — Medicaid, food stamps and the earned-income tax credit — is another front in the G.O.P.’s war against the 99 percent.
Without any changes, over the next decade or so, the gross federal debt, now nearly $17 trillion, will hurtle toward $30 trillion and soar to 150 percent of gross domestic product from around 105 percent today. Since our constitutional stasis rules out any prospect of a “grand bargain,” the nation’s fiscal collapse will play out incrementally, like a Greek/Cypriot tragedy, in carefully choreographed crises over debt ceilings, continuing resolutions and temporary budgetary patches.
The future is bleak. The greatest construction boom in recorded history — China’s money dump on infrastructure over the last 15 years — is slowing. Brazil, India, Russia, Turkey, South Africa and all the other growing middle-income nations cannot make up for the shortfall in demand. The American machinery of monetary and fiscal stimulus has reached its limits. Japan is sinking into old-age bankruptcy and Europe into welfare-state senescence. The new rulers enthroned in Beijing last year know that after two decades of wild lending, speculation and building, even they will face a day of reckoning, too.
THE state-wreck ahead is a far cry from the “Great Moderation” proclaimed in 2004 by Mr. Bernanke, who predicted that prosperity would be everlasting because the Fed had tamed the business cycle and, as late as March 2007, testified that the impact of the subprime meltdown “seems likely to be contained.” Instead of moderation, what’s at hand is a Great Deformation, arising from a rogue central bank that has abetted the Wall Street casino, crucified savers on a cross of zero interest rates and fueled a global commodity bubble that erodes Main Street living standards through rising food and energy prices — a form of inflation that the Fed fecklessly disregards in calculating inflation.
These policies have brought America to an end-stage metastasis. The way out would be so radical it can’t happen. It would necessitate a sweeping divorce of the state and the market economy. It would require a renunciation of crony capitalism and its first cousin: Keynesian economics in all its forms. The state would need to get out of the business of imperial hubris, economic uplift and social insurance and shift its focus to managing and financing an effective, affordable, means-tested safety net.
All this would require drastic deflation of the realm of politics and the abolition of incumbency itself, because the machinery of the state and the machinery of re-election have become conterminous. Prying them apart would entail sweeping constitutional surgery: amendments to give the president and members of Congress a single six-year term, with no re-election; providing 100 percent public financing for candidates; strictly limiting the duration of campaigns (say, to eight weeks); and prohibiting, for life, lobbying by anyone who has been on a legislative or executive payroll. It would also require overturning Citizens United and mandating that Congress pass a balanced budget, or face an automatic sequester of spending.
It would also require purging the corrosive financialization that has turned the economy into a giant casino since the 1970s. This would mean putting the great Wall Street banks out in the cold to compete as at-risk free enterprises, without access to cheap Fed loans or deposit insurance. Banks would be able to take deposits and make commercial loans, but be banned from trading, underwriting and money management in all its forms.
It would require, finally, benching the Fed’s central planners, and restoring the central bank’s original mission: to provide liquidity in times of crisis but never to buy government debt or try to micromanage the economy. Getting the Fed out of the financial markets is the only way to put free markets and genuine wealth creation back into capitalism.
That, of course, will never happen because there are trillions of dollars of assets, from Shanghai skyscrapers to Fortune 1000 stocks to the latest housing market “recovery,” artificially propped up by the Fed’s interest-rate repression. The United States is broke — fiscally, morally, intellectually — and the Fed has incited a global currency war (Japan just signed up, the Brazilians and Chinese are angry, and the German-dominated euro zone is crumbling) that will soon overwhelm it. When the latest bubble pops, there will be nothing to stop the collapse. If this sounds like advice to get out of the markets and hide out in cash, it is.
David A. Stockman is a former Republican congressman from Michigan, President Ronald Reagan’s budget director from 1981 to 1985 and the author, most recently, of “The Great Deformation: The Corruption of Capitalism in America.”
*********EPA announces new rules for auto emissions, sulfur in gasoline
By Agence France-Presse
Friday, March 29, 2013 18:52 EDT
US regulators announced on Friday stricter rules on vehicle emissions and a requirement for low-sulfur gasoline as part of President Barack Obama’s efforts to reduce pollution.
The Environmental Protection Agency’s proposal would require a 60 percent reduction in sulfur in gasoline as well as stricter tailpipe emissions standards for cars and light trucks.
“Today’s proposal will enable the greatest pollution reductions at the lowest cost,” the EPA said in a statement.
The proposed standards will reduce gasoline sulfur levels by more than 60 percent — down to 10 parts per million (ppm) in 2017, the EPA said.
The Obama administration has said the proposal would result in a one cent per gallon cost increase at the gas pump and would cost about $130 per car in 2025.
But critics say the price to fuel vehicles will be higher, with industry estimates ranging from six to nine cents more per gallon.
“With $4 dollar a gallon gas the norm in many parts of the country, we cannot afford policies that knowingly raise gas prices,” said House Energy and Commerce Committee Chairman Fred Upton, a Republican from Michigan.
High sulfur content in gasoline creates more pollutants and adds to smog and soot in the air.
Supporters of the new rules hailed the move as a crucial step in Obama’s second term as president, and the equivalent of taking more than 33 million cars off US roads.
“We know of no other air pollution control strategy that can achieve such substantial, cost-effective and immediate emission reductions,” said S. William Becker, executive director of the National Association of Clean Air Agencies.
Lawmakers who opposed the release of the proposal, known as Tier 3, said it would raise costs for consumers in an already struggling US economy.
“The EPA continues to disregard the facts and potential economic costs of Tier 3, when consumers and our economy can’t afford gas prices going up even further,” said Louisiana Republican Senator David Vitter.
“This move signals a frightening flood of new rules.”
The proposal now faces a period of public comment before it can be finalized.
March 30, 2013An American Quilt of Privacy Laws, Incomplete
By NATASHA SINGER
WE don’t need a new platform. We just need to rebrand.
That was the message of a report from the Republican Party a few weeks ago on how to win future presidential elections.
It’s also the strategy that Peter Fleischer, the global privacy counsel at Google, recently proposed for the United States to win converts abroad to its legal model of data privacy protection. In a post on his personal blog, titled “We Need a Better, Simpler Narrative of U.S. Privacy Laws,” he describes the divergent legal frameworks in the United States and Europe.
The American system involves a patchwork of federal and state privacy laws that separately govern the use of personal details in spheres like patient billing, motor vehicle records, education and video rental records. The European Union, on the other hand, has one blanket data protection directive that lays out principles for how information about its citizens may be collected and used, no matter the industry.
Mr. Fleischer — whose blog notes that it reflects his personal views, not his employer’s — is a proponent of the patchwork system because, he writes, it offers multilayered protection for Americans. The problem with it, he argues, is that it doesn’t lend itself to simple storytelling.
“Europe’s privacy narrative is simple and appealing,” Mr. Fleischer wrote in mid-March. If the United States wants to foster trust in American companies operating abroad, he added, it “has to figure out how to explain its privacy laws on a global stage."
Other technology experts, however, view the patchwork quilt of American privacy laws as more of a macramé arrangement — with serious gaps in consumer protection, particularly when it comes to data collection online. Congress should enact a baseline consumer privacy law, says Leslie Harris, the president of the Center for Democracy and Technology, a public policy group that promotes Internet freedom.
"I don’t think this fight is about branding," Ms. Harris says. “We’ve been trying to get a comprehensive privacy law for over a decade, a law that would work for today and for technologies that we have not yet envisioned."
Many Americans are aware that stores, Web sites, apps, ad networks, loyalty card programs and so on collect and analyze details about their purchases, activities and interests — online and off. Last year, both the United States and the European Union proposed to give their citizens greater control over such commercial data-mining.
If the American side now appears to be losing the public relations battle, as Mr. Fleischer suggested, it may be because Europe has forged ahead with its project to modernize data protection. When officials of the United States and the European Union start work on a free trade agreement in the coming months, the trans-Atlantic privacy regulation divide is likely to be one of the sticking points, analysts say.
“We really are an outlier,” says Christopher Calabrese, legislative counsel for privacy-related issues at the American Civil Liberties Union in Washington.
For the moment, officials on either side of the Atlantic seem to be operating at different speeds.
In January 2012, the European Commission proposed a new regulation that could give citizens in the E.U.’s 27 member states some legal powers that Americans now lack. These include the right to transfer text, photo and video files in usable formats from one online service provider to another. American consumers do not have such a national right to data portability, and have to depend on the largesse of companies like Google, which permits them to download their own YouTube videos or Picasa photo albums.
A month after Europe proposed to update its data protections, the Obama administration called on Congress to enact a “consumer privacy bill of rights” that would apply to industries not already covered by sectoral privacy laws. These could include data brokers, companies that collect details on an individual’s likes, leisure pursuits, shopping habits, financial status, health interests and more.
The White House’s blueprint for legislation, for example, would give Americans the right to some control over how their personal data is used, as well as the right to see and correct records that companies hold about them. The White House initiative broadened the historical American view of privacy as “the right to be let alone” — a definition put forward by Louis Brandeis and Samuel Warren in 1890 — to a more modern concept of privacy as the right to commercial data control.
"We can’t wait," a post on the White House blog effused at the time.
A year later, the data protection regulation proposed by the European Commission has been vetted by a number of regulators and committees of the European Parliament. The document now has several thousand amendments, some developed in response to American trade groups that had complained that certain provisions could hinder innovation and impede digital free trade. Peter Hustinx, the European data protection supervisor, said last Wednesday that European officials hoped to enact the law by next spring.
In the United States, by contrast, a year after the Obama administration introduced the notion of a consumer privacy bill of rights, a draft has yet to be completed, let alone made public.
Cameron F. Kerry, the general counsel of the Commerce Department and the official overseeing the privacy effort, was not available to comment last week. In a phone interview in January, however, Mr. Kerry said that the agency was working on legislative language to carry out the White House’s plan.
“The idea is to have baseline privacy protections for those areas not covered today by sectoral regimes,” Mr. Kerry said. He added: “We think it is important to do it in a way that allows for flexibility, that allows for innovation, and is not overly prescriptive.”
Chris Gaither, a Google spokesman, said his company was “engaging on important issues” like security breach notification and declined to comment on consumer privacy legislation. But at least some American technology companies suggest that a baseline privacy law could benefit both consumers and companies. In a statement last year, Microsoft said national privacy legislation could help ensure “that all businesses are using, storing and sharing data in responsible ways.”
With stronger European data rights and trade negotiations pending, Ms. Harris, of the Center for Democracy and Technology, says Congress may feel pressure to pass privacy legislation. That would represent a big change for American consumers as well as a better privacy sound bite abroad.
“We either have to enact our own law or we are going to have to comply with other countries’ laws,” Ms. Harris says. “But doing nothing may no longer be the answer.”
March 30, 2013Letting Down Our Guard With Web Privacy
By SOMINI SENGUPTA
SAY you’ve come across a discount online retailer promising a steal on hand-stitched espadrilles for spring. You start setting up an account by offering your e-mail address — but before you can finish, there’s a ping on your phone. A text message. You read it and respond, then return to the Web site, enter your birth date, click “F” for female, agree to the company’s terms of service and carry on browsing.
But wait: What did you just agree to? Did you mean to reveal information as vital as your date of birth and e-mail address?
Most of us face such decisions daily. We are hurried and distracted and don’t pay close attention to what we are doing. Often, we turn over our data in exchange for a deal we can’t refuse.
Alessandro Acquisti, a behavioral economist at Carnegie Mellon University in Pittsburgh, studies how we make these choices. In a series of provocative experiments, he has shown that despite how much we say we value our privacy — and we do, again and again — we tend to act inconsistently.
Mr. Acquisti is something of a pioneer in this emerging field of research. His experiments can take time. The last one, revealing how Facebook users had tightened their privacy settings, took seven years. They can also be imaginative: he has been known to dispatch graduate students to a suburban mall in the name of science. And they are often unsettling: A 2011 study showed that it was possible to deduce portions of a person’s Social Security number from nothing but a photograph posted online. He is now studying how online social networks can enable employers to illegally discriminate in hiring.
Mr. Acquisti, 40, sees himself not as a nag, but as an observer holding up a mirror to the flaws we cannot always see ourselves. “Should people be worried? I don’t know,” he said with a shrug in his office at Carnegie Mellon. “My role is not telling people what to do. My role is showing why we do certain things and what may be certain consequences. Everyone will have to decide for themselves.”
Those who follow his work say it has important policy implications as regulators in Washington, Brussels and elsewhere scrutinize the ways that companies leverage the personal data they collect from users. The Federal Trade Commission last year settled with Facebook, resolving charges that it had deceived users with changes to its privacy settings. State regulators recently fined Google for harvesting e-mails and passwords of unsuspecting users during its Street View mapping project. Last year, the White House proposed a privacy bill of rights to give consumers greater control over how their personal data is used.
Mr. Acquisti has been at the forefront, testifying in Congress and conferring with the F.T.C. David C. Vladeck, who until recently headed the agency’s Bureau of Consumer Protection, said Mr. Acquisti’s research on facial recognition spurred the commission to issue a report on the subject last year. “No question it’s been influential,” Mr. Vladeck said of Mr. Acquisti’s work.
Companies, too, are interested; Microsoft Research and Google have offered Mr. Acquisti research fellowships. Over all, his research argues that when it comes to privacy, policy makers should carefully consider how people actually behave. We don’t always act in our own best interest, his research suggests. We can be easily manipulated by how we are asked for information. Even something as simple as a playfully designed site can nudge us to reveal more of ourselves than a serious-looking one.
“His work has gone a long way in trying to help us figure out how irrational we are in privacy related decisions,” says Woodrow Hartzog, an assistant professor of law who studies digital privacy at Samford University in Birmingham, Ala. “We have too much confidence in our ability to make decisions.”
This is perhaps Mr. Acquisti’s most salient contribution to the discussion. Solutions to our leaky privacy system tend to focus on transparency and control — that our best hope is knowing what our data is being used for and choosing whether to participate. But a challenge to that conventional wisdom emerges in his research. Giving users control may be an essential step, but it may also be a bit of an illusion.
IF iron ore was the raw material that enriched the steel baron Andrew Carnegie in the Industrial Age, personal data is what fuels the barons of the Internet age. Mr. Acquisti investigates the trade-offs that users make when they give up that data, and who gains and loses in those transactions. Often there are immediate rewards (cheap sandals) and sometimes intangible risks downstream (identity theft). “Privacy is delayed gratification,” he warned.
Mr. Acquisti, lean and loquacious, grew up in Italy. His father, Giancarlo, was a banker by profession and a pianist on the side. Mr. Acquisti inherited his father’s passion for music; last year he helped him write an opera about Margherita Luti, the woman believed to be the painter Raphael’s lover and muse. Mr. Acquisti’s other passion is motorcycle racing — he rides a red Ducati — though the pursuit of tenure, which he acquired last year, has lately kept him off the racing circuit.
He earned a bachelor’s degree in economics in Rome and master’s degrees in the subject from Trinity College in Dublin and the London School of Economics, and he became interested in the economics of privacy while studying for a doctorate in the interdisciplinary School of Information at the University of California, Berkeley.
He describes himself as an early adopter of technology. He dabbled in programming in his youth and was an early and avid user of Friendster and Second Life. He had planned to study the economics of artificial intelligence.
But as the Web matured and became more commercialized, he grew increasingly concerned about Web services that demanded real names. He questioned why companies should track the online behavior of users in order to tailor their ads.
These concerns led him to his one and only foray into a business enterprise. In 2002, with a pair of fellow graduate students at Berkeley, he made a cryptographic tool that would allow people to make purchases anonymously from e-commerce sites. He quickly realized, however, that even though consumers claimed to want privacy, they didn’t want to pay for it. The start-up failed. His interest in privacy economics deepened.
To think about privacy more clearly, he argues, technologists need to understand human behavior better. With that end in mind, he will teach next fall in a new, interdisciplinary one-year master’s program at Carnegie Mellon called privacy engineering.
“The technologist in me loves the amazing things the Internet is allowing us to do,” he said. “The individual who cares about freedom is concerned about the technology being hijacked, from a technology of freedom into a technology of surveillance.”
EARLY in his sojourn in this country, Mr. Acquisti asked himself a question that would become the guiding force of his career: Do Americans value their privacy?
At Carnegie Mellon, where he landed in 2003, he investigated the question with Facebook users. He started tracking a cohort of more than 5,000 people, most of them undergraduates at the time. He noticed that although people revealed more and more of their personal history — responding to Facebook’s prompts about whether, say, they had just had a baby or had voted — they were also restricting who could see it. Over time, they were, on the whole, less likely to let “everyone” see their date of birth, for instance, and what high school they had attended.
Experiments like this have their limits and are open to different interpretations. This study, for instance, focused largely on college undergraduates who may have become cautious about who could see information about them as they approached graduation and prepared to enter the job market. But the Facebook study suggested at least that some people valued their privacy enough to seek out the social network’s evolving settings and to block strangers from seeing what they had posted.
Aiming to learn how consumers determine the value of their privacy, Mr. Acquisti dispatched a set of graduate students to a suburban mall on the outskirts of Pittsburgh. To some shoppers, the students offered a $10 discount card, plus an extra $2 discount in exchange for their shopping data. Half declined the extra offer — apparently, they weren’t willing to reveal the contents of their shopping cart for a mere $2.
To other shoppers, however, the students offered a different choice: a $12 discount card and the option of trading it in for $10 if they wished to keep their shopping record private. Curiously, this time, 90 percent of shoppers chose to keep the higher-value coupon — even if it meant giving away the information about what they had bought.
Why such contradictory responses?
To Mr. Acquisti, the results offered a window into the tricks our minds can play. If we have something — in this case, ownership of our purchase data — we are more likely to value it. If we don’t have it at the outset, we aren’t likely to pay extra to acquire it. Context matters.
It also matters how we define privacy. Conventional wisdom around Web privacy policies rests on the notion that consumers will make intelligent choices. At a recent industry conference in San Francisco, Erin Egan, the chief privacy officer for Facebook, defined privacy as “understanding what happens to your data and having the ability to control it.”
Mr. Acquisti, however, suggests that control can be false comfort. In one of his most intriguing experiments, he summoned student volunteers to take an anonymous survey on vice.
The participants were asked whether they had ever stolen anything, lied or taken drugs. Some were told that their answers would be published in a research bulletin, others were asked for explicit permission to publish those answers, and still others were asked for permission to publish the answers as well as their age, sex and country of birth.
The results revealed the imperfection of human reasoning. Those who were offered the least control over who would see their answers seemed most reluctant to reveal themselves: among them, only 15 percent answered all 10 questions. Those who were asked for consent were nearly twice as likely to answer all questions. And among those who were asked for demographic information, every single person gave permission to disclose the data, even though those details could have allowed a complete stranger a greater chance of identifying the participant.
Mr. Acquisti took note of the paradox: fine-grained controls had led people to “share more sensitive information with larger, and possibly riskier, audiences.” He titled the paper, which he wrote with his colleagues Laura Brandimarte and George Loewenstein, “Misplaced Confidences: Privacy and the Control Paradox.”
“What worries me,” he said, “is that transparency and control are empty words that are used to push responsibility to the user for problems that are being created by others.”
That sense of control can be undermined in other ways, too, principally by distractions: they apparently play the most powerful tricks of all.
In a study called “Sleights of Privacy,” Mr. Acquisti’s subjects — students at Carnegie Mellon — were divided into two sets of two groups. Each group was asked to evaluate professors and were given additional questions about cheating. In the first set, half were told that only other students could see their answers; the others were told that faculty members, as well as students, could see the responses. As one might expect, the group with student-only viewers was more forthcoming than the group with student and faculty viewers. The participants seemed concerned about who could see their evaluations.
With the other set of students, Mr. Acquisti offered the same questionnaire — but played a little trick. After again explaining the response rules and procedures, he asked an unrelated question: Would they like to sign up to receive information from a college network? That little distraction had an impact: This time, the two subgroups were almost equally forthcoming in their answers.
Had the distraction made them forget? No. In exit interviews, they remembered the rules, but they behaved as though they didn’t. “You remember somewhere in your brain,” is how Mr. Acquisti put it, “but you kind of pay less attention to it.”
We are constantly asked to make decisions about personal data amid a host of distractions, like an e-mail, a Twitter notification or a text message. If Mr. Acquisti is correct, those distractions may hinder our sense of self-protection when it comes to privacy.
Mr. Acquisti acknowledges being as easily distracted as the rest of us. He loses focus, darts from one task to the other and finds himself working all the time. His latest weapon against distraction is an iPad application, which lets him create a to-do list every morning and set timers for each task: 30 minutes for e-mail, 60 minutes to grade student papers, and so on.
Given his work, it is not surprising that he is cautious in revealing himself online. He says he doesn’t feel compelled to post a picture of his meals on Instagram. He uses different browsers for different activities. He sometimes uses tools that show which ad networks are tracking him. But he knows he cannot hide entirely, which is why some people, he says, follow a policy of “rational ignorance.” He has a professional page on the Carnegie Mellon Web site — if he didn’t, how would he attract students or signal his academic legitimacy? — that describes his research and includes a photograph. And it contains an intriguing bit of information: his interest in Nutella.
OUR browsing habits, search terms, e-mail communication — even our offering of our ZIP codes at the supermarket checkout — reveal bits of information that can be assembled by data companies, usually for the purpose of knowing what sorts of products we’re most likely to buy. The online advertising industry insists that the data is scrambled to make it impossible to identify individuals.
Mr. Acquisti offers a sobering counterpoint. In 2011, he took snapshots with a webcam of nearly 100 students on campus. Within minutes, he had identified about one-third of them using facial recognition software. In addition, for about a fourth of the subjects whom he could identify, he found out enough about them on Facebook to guess at least a portion of their Social Security numbers.
The point of the experiment was to show how easy it is to identify people from the rich trail of data they scatter around the Web, including seemingly harmless pictures. Facebook can be especially valuable for identity thieves, particularly when a user’s birth date is visible to the public.
Does that mean Facebook users should lie about their birthdays (and break Facebook’s terms of service)? Mr. Acquisti demurred. He would say only that there are “complex trade-offs” to be made.
“I reveal my date of birth and hometown on my Facebook profile and an identity thief can reconstruct my Social Security number and steal my identity,” he said, “or someone can send me ‘happy birthday’ messages on the day of my birthday, which makes me feel very good.”
Facebook, for its part, has said that users can control who sees their information on the network.
Mr. Acquisti is on Facebook. He is photographed wearing a motorcycle helmet, which makes him a bit harder to identify.
March 30, 2013Labor and Business Reach Deal on Immigration Issue
By ASHLEY PARKER and STEVEN GREENHOUSE
WASHINGTON — The nation’s top business and labor groups have reached an agreement on a guest worker program for low-skilled immigrants, a person with knowledge of the negotiations said on Saturday. The deal clears the path for broad immigration legislation to be introduced when Congress returns from its two-week recess in mid-April.
Senator Charles E. Schumer, Democrat of New York, convened a conference call on Friday night with Thomas J. Donohue, the president of the U.S. Chamber of Commerce, and Richard L. Trumka, the president of the A.F.L.-C.I.O., the nation’s main federation of labor unions, in which they agreed in principle on a guest worker program for low-skilled, year-round temporary workers. Mr. Schumer is one of eight senators from both parties who have been negotiating an overhaul of the nation’s immigration laws.
Pay for guest workers was the last major sticking point on a broad immigration package, and one that had stalled the eight senators just before the break. The eight senators still need to sign off on the agreement between the business and labor groups, the person with knowledge of the talks said.
“This issue has always been the deal breaker on immigration reform, but not this time,” Mr. Schumer said.
The accord between the influential business and labor groups all but assured that the bipartisan group of senators would introduce their broad immigration legislation in the next few weeks. Their bill, which they have been meeting about several times a week since the November election, would provide a path to citizenship for the 11 million illegal immigrants already in the country. It would also take steps to secure the nation’s borders.
A similar bipartisan group in the House has been meeting on and off for nearly four years, and hopes to unveil its own immigration legislation shortly.
The agreement resolved what the pay level should be for low-skilled immigrants — often employed at hotels and restaurants or on construction projects — who could be brought in during labor shortages.
Labor groups wanted to ensure that guest workers would not be paid less than the median wage in their respective industries, and the two sides compromised by agreeing that guest workers would be paid the higher of the prevailing industry wage as determined by the Labor Department or the actual employer wage.
Under the deal, guest workers would be allowed to pursue a path to citizenship and to change jobs after they arrived in the United States.
Another sticking point, involving the specific type of jobs that would be included in the guest worker program, was also resolved. Though low-skilled construction workers will be included in the visa program, construction unions persuaded the negotiators to exclude certain types of more skilled jobs — like crane operators and electricians — from the program, officials involved in the talks said.
According to officials with the A.F.L.-C.I.O., the program would start at 20,000 visas, rising to 35,000 visas in the second year, 55,000 in the third and 75,000 in the fourth. In the fifth year, the program would expand or shrink based on the unemployment rate, the ratio of job openings to unemployed workers and various other factors. The agreement calls for a maximum of 200,000 guest visas granted each year.
One third of all visas available in any given year would go to businesses with fewer than 25 employees. No more than 15,000 visas per year would go to construction occupations.
Business groups, which had long been pushing to allow in 400,000 such guest workers each year, will get what they regard as an adequate number to meet the needs of employers.
Mr. Schumer also spoke on Saturday with Denis McDonough, the White House chief of staff, to update him on the agreement. President Obama is eager for an overhaul of the immigration system and has threatened to step in with his own plan if Congress does not move quickly with legislation of its own.
“The president continues to be encouraged by progress being made by the bipartisan group of senators,” said Clark Stevens, a White House spokesman. “We look forward to seeing language once it is introduced, and expect legislation to move forward as soon as possible.”
But Senator Marco Rubio, Republican of Florida and a member of the bipartisan group, sent a letter Saturday to Senator Patrick Leahy, Democrat of Vermont and the chairman of the Senate Judiciary Committee, urging against “excessive haste” in considering the soon-to-be-introduced legislation. The support of voters will be crucial for passing any immigration law, Mr. Rubio said in the letter, and “that support can only be earned through full and careful consideration of legislative language and an open process of amendments.”
Shortly before the conference call on Friday night between Mr. Schumer, Mr. Donohue and Mr. Trumka ended, one of the men suggested that the three of them get together soon for dinner; it had been, they all agreed, a long few weeks.
March 30, 2013As OSHA Emphasizes Safety, Long-Term Health Risks Fester
By IAN URBINA
TAYLORSVILLE, N.C. — Sheri Farley walks with a limp. The only job she could hold would be one where she does not have to stand or sit longer than 20 minutes, otherwise pain screams down her spine and up her legs.
“Damaged goods,” Ms. Farley describes herself, recalling how she recently overheard a child whispering to her mother about whether the “crippled lady” was a meth addict.
For about five years, Ms. Farley, 45, stood alongside about a dozen other workers, spray gun in hand, gluing together foam cushions for chairs and couches sold under brand names like Broyhill, Ralph Lauren and Thomasville. Fumes from the glue formed a yellowish fog inside the plant, and Ms. Farley’s doctors say that breathing them in eventually ate away at her nerve endings, resulting in what she and her co-workers call “dead foot.”
A chemical she handled — known as n-propyl bromide, or nPB — is also used by tens of thousands of workers in auto body shops, dry cleaners and high-tech electronics manufacturing plants across the nation. Medical researchers, government officials and even chemical companies that once manufactured nPB have warned for over a decade that it causes neurological damage and infertility when inhaled at low levels over long periods, but its use has grown 15-fold in the past six years.
Such hazards demonstrate the difficulty, despite decades of effort, of ensuring that Americans can breathe clean air on the job. Even as worker after worker fell ill, records from the Occupational Safety and Health Administration show that managers at Royale Comfort Seating, where Ms. Farley was employed, repeatedly exposed gluers to nPB levels that exceeded levels federal officials considered safe, failed to provide respirators and turned off fans meant to vent fumes.
But the story of the rise of nPB and the decline of Ms. Farley’s health is much more than the tale of one company, or another chapter in the national debate over the need for more, or fewer, government regulations. Instead, it is a parable about the law of unintended consequences.
It shows how an Environmental Protection Agency program meant to prevent the use of harmful chemicals fostered the proliferation of one, and how a hard-fought victory by OSHA in controlling one source of deadly fumes led workers to be exposed to something worse — a phenomenon familiar enough to be lamented in government parlance as “regrettable substitution.”
It demonstrates how businesses at once both suffer from and exploit the fitful and disjointed way that the government tries to protect workers, and why occupational illnesses have proved so hard to prevent.
And it highlights a startling fact: OSHA, the watchdog agency that many Americans love to hate and industry often faults as overzealous, has largely ignored long-term threats. Partly out of pragmatism, the agency created by President Richard M. Nixon to give greater attention to health issues has largely done the opposite.
OSHA devotes most of its budget and attention to responding to here-and-now dangers rather than preventing the silent, slow killers that, in the end, take far more lives. Over the past four decades, the agency has written new standards with exposure limits for 16 of the most deadly workplace hazards, including lead, asbestos and arsenic. But for the tens of thousands of other dangerous substances American workers handle each day, employers are largely left to decide what exposure level is safe.
By contrast, OSHA has two dozen pages of regulations just on ladders and stairs.
“I’m the first to admit this is broken,” said David Michaels, the OSHA director, referring to the agency’s record on dealing with workplace health threats. “Meanwhile, tens of thousands of people end up on the gurney.”
Royale Comfort Seating disputes that Ms. Farley’s health problems and those of some other workers were linked to their jobs. Company officials also say that while they have sought to safeguard their workers, they have also feared losing jobs to foreign competitors, as many of their industry counterparts in North Carolina have.
Royale has not switched away from the nPB glues, managers said, because alternatives did not work well, were sometimes more dangerous and were almost always more expensive.
“We, as a company, are also in a tight spot,” said William Lee Isenhour, Royale’s director of personnel and safety.
Chronic ailments caused by toxic workplace air — black lung, stonecutter’s disease, asbestosis, grinder’s rot, pneumoconiosis — incapacitate more than 200,000 workers in the United States annually. More than 40,000 Americans die prematurely each year from exposure to toxic substances at work — 10 times as many as those who die from the refinery explosions, mine collapses and other accidents that grab most of the news media attention.
Occupational illnesses and injuries like Ms. Farley’s cost the American economy roughly $250 billion per year because of medical expenses and lost productivity, according to government data analyzed by J. Paul Leigh, an economist at the University of California, Davis, more than the cost of diabetes or chronic obstructive pulmonary disease. Roughly 40 percent of medical expenses from workplace hazards, or about $27 billion a year, is paid by public programs like Medicare and Medicaid.
And yet the full price of this epidemic is measured not just in hospital bills and wages lost, but also in the ways, large and small, that life has changed for Ms. Farley and other sickened workers. Glue fumes robbed her of dignity and the joy of small comforts. Her favorite high heels stay in her closet because her feet no longer cooperate. She barks at her 8-year-old daughter, Allie, for hopping around their double-wide trailer because the floor’s vibrations cause intense stinging.
“I did the work,” Ms. Farley said about her years putting together furniture for America’s households. “This doesn’t seem a fair price to pay.”
Two industries converge in North Carolina along the nine-mile stretch of Interstate 40 between Hickory and Claremont. Foam meets furniture here. Cushions find seats.
For nearly a century, towns in these western foothills have been famous for their fine home furnishings, producing roughly half the chairs and tables sold nationwide at the industry’s peak in the 1980s. Every year, several million pounds of a flexible polyurethane foam known as slabstock arrives. It becomes the spongy filling in most of the mattresses, chairs and couches produced in the United States.
Delivered as huge yellow or pink loaves, often about four feet high and the length of a tractor-trailer, the slabstock is cut into pieces and glued into shapes by rows of workers standing in booths. They sometimes attach upholstery or add a top layer of polyester fiber to give the cushions a softer feel.
North Carolina has been especially affected by globalization and federal regulations. Shifting cultural mores and rising cigarette taxes have cleared hundreds of tobacco farms. Foreign competition has closed most of the textile mills. More than half of the furniture jobs once based here are now gone, according to federal labor data.
Still, about a thousand people spread across several dozen plants in the state work in this locally vital industry. For Ms. Farley, the job at Royale making cushions represented something rare: a chance for someone with little more than a high school diploma and an ability to stand on her feet all day to make more than $9 an hour.
Day 1 at the job brought ominous advice. Don’t dally, co-workers counseled her; managers keep track of your cushions per hour. Bring a hair dryer; it helps in warming brittle hands in winter when the plant gets frigid. Stock up on aspirin and tissues: the first to survive the headaches from the glue’s gasoline-like fumes; the second because the fumes clear the sinuses.
Asked about the conditions, Royale officials said their three plants, two here in Taylorsville and one about 15 miles away in Conover, were no worse than others in the business.
But no one denied it was dirty, bone-tiring work. During 10-hour shifts, the gluers held spray guns attached to hoses that ran to a humming compressor and 55-gallon drums filled with the glue. Once sprayed, the glue coated everything — the lights, fans, floors and electrical outlets — and hung over the workers’ cubicles like a shroud.
“It puts the fog in your head,” Ms. Farley said. By the end of a shift, the glue left some workers so dizzy that they walked as if they were drunk. At times, they did not remember driving home.
A Chemical’s Use Grows
Cushion-making companies had every reason to like nPB glues. First marketed in the late 1990s, they were inexpensive, strong, fast-drying and, best of all, unregulated.
“It’s so safe you can eat it,” glue salesmen in North Carolina told customers, according to federal researchers. Plant operators joked, “At worst, it’s a cheap high,” an official from an industry trade association recalled. Water-based glues, though safer, dried slower. And retooling a plant to use them could cost anywhere from several thousand dollars to more than $1 million, in some cases doubling a company’s gluing costs.
Finding a glue that complied with federal rules was a continuing struggle. In the early 1980s, many companies used glue with a chemical called 1,1,1-trichloroethane, or TCA. But the United States and other countries then banned it because it damages the ozone layer, and businesses switched to methylene chloride.
Nicknamed by cushion makers “methyl ethyl bad stuff,” it killed more than 30 workers a year and sickened thousands more across all industries. OSHA tightened safety limits on the chemical, so companies sought a new option. Before long, roughly a third of the cushion-making industry had switched to nPB-based glues.
For the most part, American employers are left on their own to find substitutes when federal agencies impose new rules on chemicals. But when the government forces the phasing out of one hazardous chemical, it is often replaced by another equally or more dangerous one.
From the start, government officials worried about the safety of nPB, which is also sometimes called 1-bromopropane or 1-BP.
In 1999, Adam Finkel, OSHA’s top health officer who had led the agency’s drive to phase out methylene chloride, wrote a letter warning that nPB was being used as a replacement at levels 10 to 200 times what chemical companies said was safe. Something needed to be done, he said, before the number of people exposed to the new chemical “grows from the hundreds to the tens of thousands or more.”
Some companies pulled back. Protonique SA, a Swiss circuit-board maker, banned it for its workers, who used a form of the chemical that was less toxic than that inhaled by Royale workers. “There is a weight of evidence that should sound warning bells to any thinking person,” the company said in 1999. By 2003, Atofina and Great Lakes, two large chemical companies, had decided they would no longer sell nPB.
In the six years after Mr. Finkel wrote his warning letter, federal authorities learned that more than 140 cushion workers nationwide, mostly from plants in Utah, Mississippi and North Carolina, including Royale, had been exposed to dangerous levels of the chemical, many of them sickened and unable to walk.
Cushion makers in the 30,000-employee foam industry were among the most vulnerable of all workers using nPB because they breathed it in aerosol doses. Those employed in other businesses mostly used it in other forms, which pose lower risks, according to scientists, who are finding mounting evidence that nPB is also a carcinogen.
Pinpointing the cause of a worker’s ailment is an inexact science because it is so difficult to rule out the role played by personal habits, toxins in the environment or other factors. But for nearly two decades, most chemical safety scientists have concluded that nPB can cause severe nerve damage when inhaled even at low levels.
Ms. Farley sued Royale for workers’ compensation payments. Her case, along with several other lawsuits related to glue fumes brought by other workers, has been settled.
When news of exposure problems at Royale reached officials at Mid South Adhesives, the maker of the glue that Royale used, they sent an inspector who found that Royale’s Conover plant showed levels at least 10 times what Mid South deemed safe. Mid South officials wrote to Royale to say they could “not stress enough” the need to provide better protections or to stop using their glue.
Royale officials, though, responded that even though they had added fans, had trained workers handling toxic chemicals and planned to put in a new ventilation system, problems persisted.
“We tried to use a water-base adhesive, which did not work for us,” a Royale official wrote, adding that the company saw no alternative but to stick with nPB glue.
Other companies were also reluctant to switch from nPB glues. Officials of the Franklin Corporation, a cushion plant in Houston, Miss., explained in court documents that safety was important but that nPB glues were attractive because they dried so fast that the cushions could be produced in a third of the time.
“There are people lined up out there for jobs,” said John Lyles, a vice president at Franklin, according to testimony by a plant manager in a successful lawsuit in Mississippi brought by four cushion workers who suffered severe nerve damage from the glue. “If they start dropping like flies, or something in that order, we can replace them today.”
Businesses found nPB appealing partly because the E.P.A. had given it an endorsement of sorts by adding it to a list of chemicals that do not harm the ozone layer. But an unintended effect of that action was to allow sellers of the chemical to market it as federally approved, “nonhazardous,” green and worker-friendly.
As the chemical’s popularity grew, E.P.A. officials worried about its use in spray glues, especially in cushion-making factories where the agency had determined that even with “state of the art” ventilation, “nPB-based adhesives cannot be reliably used in a manner that protects human health.”
Environmental officials figured that OSHA, pressured by the Bush administration and Republican lawmakers to be more business-friendly, would not be capable of policing the growing threat. “OSHA is tough,” E.P.A. officials said, according to notes from a November 2006 meeting on concerns about nPB. “But their budget is small, and they are not going to crack down on small businesses.”
OSHA has never set a standard establishing safety limits on workers’ exposure to nPB. The E.P.A. recommended such a limit and considered banning the nPB glues, but it has yet to finalize the plan. It determined that most cushion companies using the glue had fewer than 100 employees, which meant they were less able to absorb the cost of another regulation.
“There just wasn’t the political will,” an E.P.A. official who was part of the decision-making said on the condition of anonymity.
A single tattered page from a 2005 workers’ compensation log summed up the emerging situation at Royale. Beneath a column headed “Injury or Illness” stretched a dozen rows, each reading “All