The Market For Secrets

Alex Preston, writing in The Guardian, rhetorically asked if privacy was dead.  "Google knows what you're looking for. Facebook knows what you like," he writes.  The NSA may know what you've written too, which could be very important in a world where value increasingly consists of human intellect integrated over time.  The 21st century is a time when people are rewarded for what they know or, alternatively, punished for what they allow to be known, as General Petraeus and Hillary Clinton have found.

Yet in a "world without curtains" a person may not even have much custody over these things and find it all leaking away no sooner than set down.  A modern individual's life history may be digitally preserved more imperishably than the pyramids,  but the paradox is that this history is not really his, and is not even in his beneficial possession.

Alex Preston's Guardian article suggests a lot of people are resigned to surrender their personal information in exchange for the convenience of online commerce.  They click the consent box without ever reading the terms and conditions, reasoning that a) as ordinary individuals they are too ordinary to spy upon and b) what difference does it make anyway?

But the aggregate of billions of ordinary life records has a quality all its own. From time to time the newspapers report that politicians are passing some law to protect privacy.  Ironically, the most active users of that privacy legislation are often the politicians and confidence artists who need them to expunge their sordid pasts to begin with.  As with many other things, regulation passed "protecting the people" is actually enacted to shield the elite.

Perhaps the average person doesn't mind losing his privacy as long as nobody rubs it in. The Snowden hack was galling because he was not content with giving the data to the Russians, but had the temerity to post it online for all the world to see. By contrast, the theft of data from the Office of Personnel Management, while resulting in the the loss of millions of Federal employee records, was less politically embarrassing because the Chinese hackers had the decency to keep the data to themselves rather than leaving it on a server for the public to analyze and mock.

But the loss of privacy entails more than possible public humiliation. It magnifies risks. While most of us are conditioned to regard secrecy as pure evil, a cloak under which conspiracies and crime can lurk, the truth is that privacy is also a useful risk reduction mechanism. It can be used to conceal dissent in authoritarian governments, shield identities from ISIS, and provide spaces from the politically correct muttaween. It can be used for all kinds of good things, including preserving hard won technology developed at the cost of billions. A world without secrets is a world without much safety or innovation.

Perhaps the least appreciated use of privacy is as a time shifting device. Interestingly the clearest awareness of the relationship between time and privacy is found in the Bible. While all secrets will eventually be revealed it's the timing which is important. "For God will bring every deed into judgment," says Ecclesiastes 12:14. But only at the right time. Luke 12:3 could have been written by a prosecutor. "Therefore whatever you have said in the dark shall be heard in the light, and what you have whispered in private rooms shall be proclaimed on the housetops" yet  1 Corinthians 4:5 says "do not pronounce judgment before the time, before the Lord comes, who will bring to light the things now hidden in darkness and will disclose the purposes of the heart. Then each one will receive his commendation from God."

Privacy buys us time. It allows society to make temporarily isolated choices during which to experiment before the merge. By contrast a privacy-less society is a completely synchronous contraption where all parts have to operate in lock-step. Latency gives us the freedom to go on without freezing the interface while God returns the callback.  In that sense it plays a role similar to promises in programming. Promises invoke a process whose return value is unknown at the start. You are allowed to go on while waiting on events attached to a  stub called a Promise.

Secrets are thus a way of shifting the payment of actions across time by using the latency between the private act and the official outcome. To see how this can be advantageous, recall that during the Age of Sail the communications between His Majesty's individual ships and the Admiralty could take months. But the slowness of the messaging also conferred an extraordinary freedom on British captains. It's arguable that the freedom they obtained through latency outweighed the benefits of real time command and control. By contrast in a real time synchronous system, there is no give at all. They constrain actions ab initio.

It is obvious that privacy can be both dangerous and highly valuable. The Economist notes that privacy has become the preferred way to protect things that really matter. "The conventional way to protect intellectual property is to patent it. ... The snag is that he must publish his idea, making it easy for someone in a less lawful country to steal it.  So a lot of companies are keeping their most valuable ideas under wraps ... Elon Musk, for example, refuses to patent technologies developed at his SpaceX rocket company for fear that foreign space agencies would simply pinch them."

The most powerful argument against legally requiring weak encryption so law enforcement can have easy access to everything is that it does more harm than good. The military, intelligence agencies, and cutting edge companies are the prime users of privacy. To mandate weak encryption is to put the most value right where the Chinese, Russians, Cubans and Iranians can get them. National Security Agency Director Adm. Michael Rogers  noted “encryption is foundational to the future”.

In the wake of the terror attacks in Paris and San Bernardino, Calif., law enforcement and some lawmakers have been pressing tech companies to give investigators guaranteed access to secure data. They say encryption has allowed terrorists and criminals to operate out of sight of investigators.

But the tech and privacy community have resisted the push. They say any type of guaranteed access to data introduces vulnerabilities that weaken encryption and expose everyday Internet activity to hackers.

Rogers did not directly back one argument over the other, but he did emphasize the importance of strong encryption.

He also vouched for further adoption of encryption, especially in light of the recent hacks at the Office of Personnel Management (OPM), which exposed over 20 million federal workers’ sensitive data. The agency was knocked for not having wide encryption adoption prior to the intrusions.

The enemy gets to attack US government privacy too. Anyone who doubts this should review the sad stories of Snowden, OPM, Petraeus, Hillary as well as the thousands of American companies whose processes have been burgled by China.  Secrets are thus counter-intuitively both the cornerstone of rights as well as a threat to them. The Fourth Amendment has a symbiotic relationship with the First.  If society cannot live with too many secrets, neither can it survive with no secrets at all.

Bruce Schneier argues that everything should start encrypted. "Encryption should be enabled for everything by default, not a feature you turn on only if you're doing something you consider worth protecting."  The trouble is that not everyone will want to do so.  For many the cost and effort of maintaining privacy will not be worth the benefit.

The classic solution to the problem would be to establish a market in privacy because markets are the most efficient known mechanism for allocating valuable items.  It would allow us to know the true costs and benefits of keeping a secret by exposing it to valuation, and then rational consumers could choose the level of privacy that suits them. 

However, this runs counter to the basic instincts of bureaucracy. For example, the European high court has decided to vest a relatively obscure bureaucrat in Paris with the mandate "to lead an increasingly powerful group of European privacy regulators" to decide who gets access to what. While the individual bureaucrats may have the best of intentions of the public at heart, government agencies have a very poor record of setting prices correctly. They are likely to fail in the matter of privacy. In the first place, bureaucrats are apt to get the valuation of secrets upside down. We can expect government to set prices at inverse to their true value.

The negative costs to keeping secrets is greatest when it involves the governance of millions. The benefits of transparency are greatest when applied to government. By contrast the benefits of transparency are lowest when they involve only a few individuals. On the flip side of the ledger the benefits conferred by secrecy are lowest in governance, for who ever heard of a secret welfare program? The benefits of privacy are highest when applied to individuals, because it is individuals who provide the bulk of value and innovation in a society.

But if one leaves it to government they are likely to get things the other way around.  In a bureaucrat's world secrets are most valuable in governance and least valuable to individuals.  At present, society is still in the process of understanding these issues. They have not yet proceeded to the solutions. Perhaps the best comparison to current privacy policy is the pre-Bretton Woods financial universe.  The problem the BW agreement was designed to solve was to make monetary relations among independent nation-states possible.  The failure to do so was part of the reason why WW2 broke out in the first place.  Today, we are, in terms of privacy, where the monetary system was in the days before the War.

We have not yet solved the problem of privacy relations between countries or between individuals and countries.  What we have right now is a set of workarounds. It won't work for much longer.  Somehow a way must be found to turn what is potentially a great source of future wealth into something tractable, a source of capital rather than a thing to be stolen.

Privacy is ultimately the repository of individuality.  You wouldn't give yourself away for free, would you?

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