Will net neutrality keep the FCC politicized and will investors pay for it?

Yesterday, Federal Communications Chairman Ajit Pai issued a statement regarding an investigation by the agency’s inspector general into last year’s claims that the Commission’s website was attacked during the comment period on the Commission’s net neutrality rules. Mr. Pai asserted that he was told by the Commission’s former chief information officer that external parties attempted to overload the Commission’s electronic comment portal with high traffic. It appears that the disruption to the comment system was not the result of third-party bad actors but the result of the system not being able to accommodate a high number of respondents attempting to comment at the same time. Mr. Pai went as far to say that allegations that he was aware that the former CIO’s comments were false or hid the true reasons for political reasons were incorrect.

Commissioner Jessica Rosenworcel was more pointed in her statement, stating that the inspector general’s findings were not a surprise; that the meltdown in the system was a reflection of how serious millions of citizens took the issue of net neutrality.

Commissioner Rosenworcel’s response, short and biting, was not surprising given the political polarization I have observed on the Commission going back to the beginning of the Tom Wheeler era. The debate over net neutrality has been the focal point for political rift, a debate that I find at odds with the Commission’s core mission which is to ensure the maintenance and availability of a universal communications network.

The debate has come down to two schools of thought. On the one hand is the comedian John Oliver view, where net neutrality rules are needed to ensure that the internet is “democratized”; that all voices can be heard and that consumers have access to the content that they choose without fear that their internet service provider is favoring its content over another provider’s content.

On the other hand, there is the original “internetwork” view of Professor Tim Wu who in his 2002 proposal for net neutrality focused on the negative externalities that could impact all networks if a broadband access provider where to extend otherwise legitimate local network management into the shared areas of the internet by discriminating against traffic coming from certain internet protocol addresses, TCP ports, or domain names.

Democracy as a narrative can lend itself to justifying invasiveness as is the case of the John Oliver model. This argument creates overreach by asserting that a broadband access provider must be transparent regarding how it manages its network. Professor Wu made clear in his proposal that a broadband access provider is expected to manage its local network in a manner that keeps it operational and efficient. It is at the internetwork level (Level 3 through Level 7 in open system interconnection parlance) that could get a broadband provider in trouble where the provider can program its network to block applications, IP addresses, or domain names.

Proponents of the Oliver School haven’t made the argument why broadband access providers could not make certain economic discrimination rules regarding bandwidth within a provider’s local network. They appear willing to avoid the initial slipping on the slope and appear willing to dive right in by allegedly protecting consumers by promoting rules that may require regulating internal aspects of local network management.

For the investor, the Oliver School can be expensive as a broadband provider, especially a smaller provider, faces the risk of having to litigate an increased number of consumer complaints about the amount of bandwidth they believe that are not receiving as a result of a perceived net neutrality slight.

For the local and state governments that are tasked with investigating consumer complaints, there cost of regulation will rise in order to address complaints regarding local network management when resources should be reserved for complaints regarding violations “on the edge.”

Investors should not expect the net neutrality debate to fade away anytime soon. The politics at he Commission may intensify once another Democratic commissioner is appointed to fill the seat left vacant by Mignon Clyburn. Should the Democratic Party win the U.S. House this fall, I expect the Progressive caucus to add to the “Democracy Under Attack” narrative the failure of the Commission to implement strong net neutrality rules thereby protecting freedom of expression and a “democratized” open internet.

If Twitter doesn’t want to be an echo chamber, then it should eliminate the retweet

The democratization of the internet was supposed to open up avenues of expression for the American electorate. According to progressives, the commercial faction doing the most damage to freedom of expression on the internet was the broadband internet access provider. These firms, which include AT&T, Comcast, Cox, and Verizon, posed a threat to democratic expression because they could potentially block access to a consumer’s preferred website, manipulate the speeds at which a content provider could transmit data to a consumer, or put their content ahead of content provided by another website.

Proponents of the concept of net neutrality, where broadband access providers would be prohibited from favoring their content over those preferred by their subscribers, throttling the speeds by which content providers transmitted data, or blocking access to websites, had only in their gunsights the broadband access provider. The masses of net neutrality followers were never fully informed by their leading strategists that if commercial activity was looked at in its entirety then edge providers such as Facebook, Twitter, and Google, would have to be placed under their scopes as well.

The net neutrality faction seemed to be advancing politically and legally. After taking what appeared to be marching orders from President Barack Obama in late 2014 on implementing net neutrality rules, former Federal Communications Commission chairman Tom Wheeler delivered by issuing in 2015 a set of net neutrality rules based on the Communications Act of 1934. The following year, the U.S. Court of Appeals for the District of Columbia would seemingly affirm net neutrality after denying a court challenge of the rules by Verizon.

Unfortunately, all honeymoons end and proponents of democracy on the internet would find out over the next two years what the real challenge to democracy over the internet is: contentiousness.

For those of us who advocate in cyberspace, we know that social media can be unforgiving. Trolls hiding behind goofy looking avatars hurling one-liners and expletives make the notion of free expression a joke. Bad manners and narcissism go viral with a hashtag, the digital banner around which many, unfortunately uninformed, tend to rally. Politics is fun to watch at times, but in the end, it is low-frequency chimp shit where most of its participants vibrate at highly emotional levels.

Emotions around net neutrality were expertly manipulated by strategists to distract consumer and policymaker alike from the other side of the freedom of expression debate: a business model driven by algorithms and advertising fees.

The cynic will argue that for the edge provider, “open internet”, a term used interchangeably with net neutrality, means a business model opened to advertisement by foreign agents and the ease of infiltrating a democratic system. Dig a little deeper and the cynicism goes away because democracy is an open system that, in theory at least, allows for wide participation. Combine democracy with an open market driven by digitization and you actually lessen the argument that democracy as a political system can be attacked. Rather, democracy is increasingly susceptible to crude, direct manipulation as the alleged Russian interference with the 2016 elections demonstrates.

Russia was able to play on the contentiousness of the American political system, a system where debate is highly polarized; where communities can be quickly established around a Twitter hashtag and discussions, debates, and pronouncements made to go viral with a retweet and nary any deeper research to verify the tweet.

Maybe something for proponents of openness on the internet to consider, that while keeping their eyes and rants on the broadband access provider as gatekeeper, the focus should also be on the retweet as the Trojan Horse. To an online democracy, is one worse than the other?

Anonymity in broadband and cryptocurrency

The U.S. Supreme Court issued an opinion in Timothy Carter v. United States (No. 16-4012) on the question of whether there was a reasonable expectation of privacy where cellphone information stored by a wireless carrier is shared with the government without a warrant issued on the basis of probable cause. The court ruled last Friday that using third-party cell storage location information to track the physical movements of a citizen requires a warrant less the Fourth Amendment of the U.S. Constitution be violated. The Fourth Amendment provides the following:

“The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no warrants shall issue, but upon probable cause, supported by the oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.”

This opinion is pretty narrow and by that, I mean that the court’s holding in this case may not hold when the issue does not involve seizing information documenting an individual’s movement over a long period of time or the involuntary sharing of such information with a third party.

I admit that on the surface, this case may have nothing to do with the transmission of digital information in the form of currency given its narrow meaning. Cryptocurrency is still in its infant stage. Unlike a cellphone that generates continuous cell site location information, I doubt at this stage of crypto growth that you will have a consumer making 127 straight days of transactions such that miners are continuously verifying a consumer’s transaction blocks. It may be another matter for vendors that accept cryptocurrencies that are accepting crypto every day.

What cryptocurrency does have in common with the case is the threat to anonymity. While the general description of cryptocurrency includes anonymity, anonymity is, like the information transmitted by a cellphone, not guaranteed.  In a piece for CoinDesk.com, writer Adam Ludwin describes how cryptocurrency transactions can be “deanonymized.”  While anonymous, Bitcoin transactions, for example, are not private. Transactions are recorded in a distributed ledger called a blockchain. Anonymity is more a function of the Bitcoin protocol, but during a user loses anonymity when their identities are linked to their initial Bitcoin currency purchases, whether done via a digital wallet or via an exchange.

Mr. Ludwin describes how anonymity can be gained by buying Bitcoin from a private holder or buying from an exchange.  But just like a mobile broadband communications network can betray a subscriber’s identity, so to can a cryptocurrency network, whether via the public nature of Bitcoin’s transactions ledger or via the IP addresses of the computers originating Bitcoin transactions.

 

If you needed the internet that bad, you would have created it yourself

Monday 11 June 2018. We will see a repeat of the weeping and wailing that Hillary Clinton’s supporters did as they witnessed what they thought was impossible: an electoral loss to Donald Trump. Advocates for the treatment of broadband access as a telecommunications service will weep and wail not because of the loss of internet service, but because they will be out of bullets when the scare tactics imposed on millions of consumers do not come to fruition. As June goes into July into August into election season into Kwanzaa, another argument for attracting anti-Trump voters will fade away.  As the tyrannical Fake Left jump onto social media and create new forums and hashtags for the next rally, they will soon take for granted that the internet still works after all.

What I find disconcerting is the emotion attached to internet access. “If everyone is not connected, we will all sink into the pits of Hades.” “If I am not online, I am inconsequential.” “The internet is crucial to our daily living and well-being.”  None of this is true. Unlike water and energy, internet access is not a necessity for the continuation of life. Approximately 11% of Americans do not use the internet, according to data from Pew Research. More than likely, these individuals are getting information they determine as pertinent to their lives from old tried and true sources: first hand observation, published news sources, direct contact with government agencies, family and friends. These data sources are not as fast or as glitzy, but they have worked for centuries and more than likely were used by the individuals who built this digital world.

I expect the percentage of Americans not using the internet to fall over time when you consider that in 2000 approximately 48% of Americans were not online.  Our children are already internet savvy and this use of online services will only continue as they get older. As we on the tail end of the Baby Boom enter retirement, we may find ourselves using it more to connect with fellow Boomers who, unfortunately, may not be up to travel for various reasons.

What we need to avoid is allowing political factions such as the Fake Left to play on the emotions stemming from the belief that without net neutrality rules, consumers won’t be able to get to the websites of their choice, see speeds from their favorite websites slow down, or have their data sold to third parties they did not approve.  This narrative should be seen for what it is; another way to get votes.

If the Fake Left were really concerned about protecting your privacy and the speed at which you access data, they would tell you that you are responsible for reading the fine print of every service agreement for every information service provider you access. Arguing that terms and conditions are written in “legalese” is no excuse for skipping over disclosures and subjecting your privacy to abuse.  If, as the Fake Left argues, the internet is that crucial to everyday living, so crucial that it should be treated like a utility, then equal fervor should be applied to the consumer who decides to use online services.  In other words, the Fake Left should stop encouraging people who can’t fly to buy an airplane and attempt to fly it without bearing the consequences.

If you can’t get what your want from an information service provider in terms of privacy or speed, then maybe you should invest in consumer encryption services such as a virtual private network, or using a heavily encrypted network or browser such as TOR.

There are also the old methods of information gathering: a telephone (landline) and a newspaper, from which you can access by paying cash, the ultimate form of encrypted currency. Bottom line, there are ways to protect your individual privacy without implementing more onerous rules on society.

Why is net neutrality a partisan issue and how is it negatively impacting privacy rules?

Net neutrality shouldn’t be a partisan issue. The internet isn’t a government agency even though a number of governments around the world would like to restrict their citizens access to it and regulate the content that flows through it. If the internet, as it is viewed in the United States, is a means by which liberty, equality, and democracy intersect and are expressed, then shouldn’t the Republican and Democratic wings of Congress unite on those three pillars of American society?

Is there any contention in the area of liberty as it pertains to the internet?  It does not appear that way. The left replaces the word “liberty” with “freedom” and sticks pretty close to the traditional wording of the open internet, meaning no blockading of consumer access to the legal content of a website.

The right would agree with the left that consumers should be able to access the legal content of their choice. This issue goes to the fundamentals of conservative philosophy, liberty.

Regarding equality, I see contention. On the left, equality on the internet means that traffic from one website is treated the same as traffic from another website. A broadband access provider should not be allowed to throttle a site’s traffic prior to delivering the traffic to a consumer. The principle of equality would also hold, according to left internet philosophy, regarding the issue of paid prioritization. Paid prioritization occurs when a content provider pays a broadband provider for the privilege of special treatment of its traffic. The broadband provider may provide the content provider with “faster lanes” or some other privilege that grants that content deliverer’s traffic some priority over other traffic.

The right may not necessarily disagree that paid prioritization grants a one provider an advantage over another. Whether that advantage is fair or merely a valid business decision is the question and if the decision to provide priority to one type of service versus another is reasonable, then why not?

Prioritization occurs every day. Take the example of packages sent via a common carrier such as the post office. A consumer of postal services has an option of paying to send mail via regular mail or by priority mail, getting his package to its final destination within the next one or two days. The content of the mail may be such that rush delivery is of the essence.

Taking a flexible approach to prioritization may be in keeping with varying demands of different applications. In its recommendation for bipartisan legislation on net neutrality, the Information Technology & Innovation Foundation noted that:

“Legislation should allow clear flexibility for traffic differentiation for applications that require it, avoiding an overbroad flat ban on prioritization, while clearly prohibiting anticompetitive conduct. Legislation should put some restrictions on paid prioritization to limit the potential for abuse, such as a simple ban on exclusive dealing or a requirement
to offer similar terms to all customers.”

Finally, the left has made vigorous arguments that broadband access providers have the potential to threaten democracy on the internet because of their technical capability to block and throttle traffic. This potential bad behavior would restrict a consumer’s ability to choose or produce the content of her choice.

While conservatives may empathize with the self-expression argument, I would expect a two-pronged rebuttal. First, since broadband access and the internet (for the most part) is a private, commercial enterprise, there is no state action intervening in a citizen’s right to participate in the political process. That alone should make the concerns about democracy moot. Second, it is not in a broadband provider’s best business interest to discourage the use of its network. The more users and more traffic exchanged, the greater the revenues and profits and lower the operational costs of the network.

Given the heightened concern over the last two years about privacy on the internet, the left and right wings of Congress should use the need to bring certainty to privacy as a catalyst for closing the philosophical gaps in the vision for the internet. Privacy is being placed on the backburner which is unfortunate because while most consumers are fine for the most part with the internet as it is (growth in ecommerce is one such indicator of the internet’s health), codifying net neutrality principles, general principles that the left and right agree with, in the form of a statute plus providing bright-line rules on privacy and privacy enforcement will bring certainty to consumers of broadband services as to a safer internet and certainty to broadband providers that wish to continue investment absent the nightmare that a back-and-forth that the current regulatory framework creates.

Net neutrality: Good politics is about manipulating reality

Democracy gets too much credit as a platform for openness and equity. It operates efficiently by being the opposite: as a platform for manipulating reality by manipulating consensus. American society is under the mistaken belief that facts create reality. I would go further and say that Americans are confused as to the definition of the word “facts.” Engaged in an argument with the average bloke about politics and he will offer as fact his assertions based on what he perceives his surroundings to be as supported by something Joy Ann Reid or Sean Hannity said. That a fact should be measured and its existence corroborated would make his head spin. Measurement and corroboration require too much work and it is much easier to rely on feelings.

There is nothing wrong with feelings and perception per se as navigation tools for moving through life as an individual. As I get older I find myself increasingly comfortable with “going with the flow” of the day, an argument, an event. Being too linear in thinking for my personal daily life is restricting, cuts off the blood flow, creating an uptightness that drives my teenager crazy sometimes.  Sometimes you just have to say, “fuck it.”

But can a society take that attitude? I have some reservations at to what a society is purposed for but will share them some other time. For now, let us stick with a standard definition of what a society is, an organized group with some interest in common or group of persons forming a single community. While as individuals our daily rules of living may differ; you may choose to stay linear, I may choose the flow. A society, if it is to stay, by definition, cohesive must follow some standard that should be followed by everyone. It is a standard arrived at via some political mechanisms and agreed upon by consensus. The agreed upon standard is basis for the political, legal, and economic reality of the community.  Manipulate the consensus and you manipulate the reality.

Take for example the issue of net neutrality. Net neutrality is a set of principles that provide for transparency in the management of broadband networks, calls for equal treatment of all traffic flowing from all websites, and ensures that consumers are able to access the legal content of any website they choose to visit. In short, net neutrality guarantees an open and democratized internet experience.  Over the past fifteen years, ever since the inception of the concept via a paper written by a law professor, net neutrality has become for millions of Americans their internet reality.

Net neutrality is an example of manipulated consensus creating a new reality. Prior to 2003, there was no “net neutrality” concept. All traffic could not, and today arguably cannot, be treated the same. Latency, speed, and bandwidth requirements differ between types of content. Video form RealNetworks in the year 2000 used more bandwidth than an email. Remember your buffering issues? In 2018 while the buffering problems have been adequately addressed to the point where we can watch a two-hour movie on our laptops, a video still uses more bandwidth than email.  But why and how did the new consensus come about, that all traffic should be treated equally, even in the face of facts regarding network management?

First the why. In the early 1990s, alternative network providers, including cable television companies, offered services where they would take a business customer’s calling traffic, route it around a telephone company’s network, and deliver the traffic to the customer’s designated location. This was called bypass.   As revenues and profits increased and technology improved, these companies started their own local telephone networks competing for residential as well as business traffic. In these early local telephone competition days, the traffic that new entrants handed off to incumbent telephone companies was less than the traffic the new entrants received from incumbents. Instead of paying each other for the traffic they exchanged, they decided to merely keep the revenues they received from their own subscribers.

Competitors became increasingly successful and given the increased traffic they provided to the incumbents, the incumbents decided to start pursuing payments. New entrants including fledgling new content providers wanted to maintain the neutrality of payments i.e. no payment exchange, meaning that traffic should continue to be treated with neutrality. This was the beginning of the net neutrality argument.

Now, the how. Politics is about marketing to vote providers and behind good marketing is good communications. First, you make a legal and regulatory argument that neutral exchange of traffic is good policy and should be set in rule. Second, you approach regulators and the courts with this principle and try to convince them as to the feasibility, efficacy, and legality of such a rule. Lastly, to secure the rule once it has been passed, or to gain more support should the rule face roadblocks, you enlist an ignorant public with a narrative that net neutrality is about “open networks” and “freedom on the internet.” Get 4 million signatures on post cards mailed to the Federal Communications Commission and get John Oliver to go on television and skip 20 years of telecommunications history and you can change consensus on what net neutrality is really about.

So far, the efforts have put net neutrality on the political radar.  Efforts by the Federal Communications Commission to remove net neutrality rules from the books are being met in court by proponents for net neutrality rules. How it plays out, I don’t know. I do know that good politics is about effective manipulation of consensus and consensus creates the reality of net neutrality.

The philosophy of the internet of things and how one should live

Like any business, small businesses should be concerned with the changing landscape in the economy and what opportunities that landscape has to offer. The question, “how one should live” comes to mind when taking into account the potential of creating an economy where more people are freed from work. Who exactly might free from work where devices, appliances, homes, cars, etc., are connected to each other and to the world wide web? What kinds of services will those individuals need or want? What will be the value add?

I suspect that as more devices are connected to each other and to the internet, the individuals that will leverage this experience first will be in the upper percentile of income earners. High income earners who put a high premium on time and have devices that exchange data with each other and bring increased efficiency to home and professional life may have need in the future for their networks to connect with two types of services: self-actualization services and services that protect a consumer from being at the mercy of technology.

First, the self-actualized services. You may ask how services like self-help classes or hiking expeditions leverage the internet of things. I believe that as internet of things technologies free up people to do other things, there may be more time freed up for services that explore a consumer’s personal development. The consumer willing to take the self-exploration path may want more intimate growth services that only a small business can make available. I also suspect that these more personal services will come at a premium that only high-income consumers can obtain. These types of services will answer one part of the ethos question, “how one should live.”

Second, there is another part of the “how one should live” question that small business can address in an internet of things ecosystem. The internet of things may reinforce the narrative that given the power of the internet, more transparency regarding network management and more privacy protections will be needed. The internet of things itself raises the issue of whether people should expect to live in a world where their data is more transparent and their privacy increasingly eroded. Some consumers will push back on this narrative and may rely on the private sector to help them do this. I sees an opportunity for small businesses that are expert in data analysis and privacy protection to address this need.

Unfortunately for consumers, public policy is reliably slow to catch up to changes in technology and the internet of things will only expand the edge provider space, an area of the internet that is notorious for threatening consumer privacy i.e., Facebook and Google.

Small businesses should prepare themselves to address the “how one should live” question whether providing personal growth services and network protection services.

Facebook the Common Carrier

A couple weeks after Mark Zuckerberg made his appearance before Congress to describe the privacy practices and overall business model of Facebook, two media personalities, Lynette Hardaway and Rochelle Richardson, appeared before the House judiciary committee to describe the discriminatory treatment they were allegedly receiving from Facebook. The two women, known as “Diamond and Silk” to their fans, argued that Facebook intentionally changed their algorithms to keep their conservative political viewpoints from appearing in the news feeds of their followers on the social media platform.

The hearing provided heated exchanges between the two Trump-adoring personalities and congressmen sitting on the left of the political spectrum. Engagement between Diamond and Silk and two congressmen in particular, Barbara Jordan Lee, Democrat of Texas, and Hank Johnson, Democrat of Georgia, caught my attention for the heat it generated in the hearing room.

Mr Johnson took issue at first with the subject matter of the entire hearing, driving home his point that the committee would best spend its time focusing on the investigation into alleged Russian meddling in the November 2016 elections or Mr Trump’s purported attempts to remove Robert Mueller from the election tampering investigation.  He then proceeded to disparage the credibility of Diamond and Silk by asking repeatedly whether or not they were paid by the Trump campaign. After the second or third time Diamond and Silk answered “no”, the congressman should have moved on but he kept asking the same question and brought back the same taint of ridiculousness he managed to pour on himself when failing in 2010 to articulate a simple concept of overpopulation of the island of Guam by projecting that the island would “capsize” if additional American military personnel were stationed there.

Ms Lee didn’t much better in the get it together department when she gave up two minutes of her time to introduce two kids visiting congress during bring your offspring to work day and tried to get time back in order to keep up an attack using vague questions about the timing of communications between Diamond and Silk and Facebook. Ms Lee also repeatedly asked Diamond and Silk if they had received payment from the Trump campaign. After answering no at least three times, Ms Lee just kept asking the same question. By this time Louis Gohmert, Republican of Texas, dropped the gavel repeatedly letting his home girl know that question time was over.

The only saving grace during the questioning of Diamond and Silk came from Steve King, Republican of Iowa. In his questioning he alluded to similarity between Facebook and FedEx, where, like FedEx, Facebook promises to deliver a message from user to follower. If the company is preventing those messages from being received then they may be discriminating.

Facebook prefers to describe itself as a digital commune where the world connects over a bottle of Coke, a smile, and a blunt. As a user, I look at Facebook as an entertainment medium and a channel for my blog. But, over a Coke and a smile sans blunt I can also see why it could be called a common carrier.

Roger LeRoy Miller and Gaylord A. Jentz define a common carrier as a transportation service publicly licensed to provide transportation services to the general public. A common carrier must arrange carriage for all who apply, within certain limitations. The delivery of goods to a common carrier creates a bailment relationship between the shipper and the common carrier.

A bailment is a situation in which the personal property of one person (the bailor) is entrusted to another (the bailee), who is obligated to return the bailed property to the bailor or dispose of it as directed.

The common carrier’s standard of care over the received goods is based on strict liability. This means that the carrier is absolutely responsible for damage to the property in its possession with the exception of five common law exceptions:

  1. An act of God.
  2. An act of a public enemy.
  3. An order of a public authority.
  4. An act of the shipper.
  5. The inherent nature of the goods.

Calling Facebook a common carrier could raise the issue of lost profit. Diamond and Silk could claim lost profits from Facebook’s failure to deliver their messages to their followers. Diamond and Silk would have to provide evidence that the messages are being delivered for the purpose of making money and not just the expression of an opinion. Diamond and Silk would also have to provide evidence that a clear communication of profit motive was given to Facebook and that Facebook understood that communication.

Facebook’s net neutrality posse never had this scenario in mind when they pushed for more regulation of internet freedom via the imposition of net neutrality rules based on a telephone statute passed in 1934. Nor did they foresee the very openness on the internet they advocate for would lead to third-party abuses from violating user privacy to one nation-state upsetting the elections of another nation-state in cyberspace. Unfortunately, to keep Facebook in line with its commercial users’ expectations, common carrier treatment of Facebook may be an option.

 

The physics of capital

Is capital is fixed? Like energy can it neither be created or destroyed? In an hour from this writing financial markets in the United States will open up for trading. These markets act as the medium for converting cash into stocks or bonds. The law of energy would describe this conversion as the creation of a disordered state where the original form of matter, in this case cash, is turned into a more disordered state, in this case a security.

The market process does not follow the law of energy precisely. Whereas after converting matter into a disordered state means that the resulting products cannot be recombined into the original form, the stocks and bonds purchased with cash can be sold in the markets with the result being the original form, cash.

The market provides a conduit for energy transfer, the transfer between cash and securities. I consider the energy transfer that we see in the financial markets as an echo of the original and most important form of capital: information and knowledge. Information and knowledge are the “big bang” of our capital universe. The information that we derive about and from the land allow us to create and use knowledge about farming, mining, fishing. As the land becomes increasingly valuable as a source of goods and services, we use this knowledge about productivity as leverage for creating banks and banking and payment systems. Through lending and borrowing money is created and these funds can be used to expand productive capacity or invest in stocks or bonds.

Information isn’t the capital of the 21st century. It has been the premier capital of human existence. All other substance we refer to as capital emanates from this origin and is a reflection of the value of information.

I would argue that knowledge and information represent another divergence away from the laws of energy. Knowledge and information are not fixed. Man is always discovering something new whether about himself as a sovereign or about the universe around her. The more she discovers and the better she is at communicating her discoveries, the more capital in the form of currency that she can accumulate.

Currency transmits to the markets the value its holder has. It should also signal us to look behind the currency to determine who the holder is.  The rapper who has $300,000 in currency but owns no productive property and has no prospects for another hit album in a year has low value. The markets will not want to trade with him on a continuous basis versus a writer with $50,000 in coin but also owns land that she rents out for farming and is able to write software apps when not writing music. The market will see her as high value and will trade her currency.

This creates a political dilemma for politicians who claim to represent the interests of the poor. They must now come to terms with an information gap spurred on by a lack of critical thinking skills in America. Solving real world problems not only benefits the individual but benefits communities overall as solutions are distributed throughout communities. The ability to bring solutions to real world problems enhances value and creates currency. For the poor access to quality education or other resources that provide a conduit to knowledge should be at the top of the policy agenda if they are to survive an economy that asserts a greater need for knowledge and information talent.

Capital may, after all, not be fixed and can be created. Information is the most important source of capital and like energy needs an infrastructure that allows its generators to signal and transmit value.

 

Facebook’s challenges demonstrate it is time to level the regulatory playing field

This week’s joint senate hearing on Facebook’s privacy and transparency policies raised the question, does the public expect Facebook to act like a information utility? Reactions on Facebook to Mark Zuckerberg’s testimony before the U.S. Senate’s commerce and judiciary committees ranged from calling the 33-year old CEO a “shitbag” to praising him for confidently addressing questions from a 44 senators, a significant number of whom gave the impression that they had no clue as to what Facebook’s model is.

Consumers have been bitching and moaning about Facebook for years, expressing displeasure whenever the company changed the configuration of its pages, added or subtracted icons, or changed its algorithms in order to present what it thinks is more pertinent information to its users. Most users access Facebook’s content at no out-of-pocket cost to them and I personally know of no one who clicks on the ad links that pop up along the right hand side of our timelines. Yet, a significant number of users have expectations about how Facebook treats them, especially when they get put in “Facebook jail” for stating positions that may not be in keeping with the Facebook’s “righteousness police squad.”

If any senator yesterday came close to summarizing my personal sentiments on Facebook it was Orrin Hatch, Republican of Utah. The 42-year senate veteran, in the five minutes allotted to each senator, was able to get across that Facebook was not a utility; that if people were not satisfied with the product that they could go elsewhere on the internet. I don’t view Facebook as a necessity although I admit I probably spend too much time posting there albeit not as much eleven years ago when I was invited to join the Facebook community.  It can see where it can be addicting, but in the end it is not a utility.

With a utility there is an understanding that in exchange for a service generated with the use of natural resources purchased by the utility, you the consumer will compensate the utility for the generation and distribution of said service. And if that utility is regulated, the regulator is following a mandate to balance the consumer’s interest in fair and reasonable rates and consumer protection with the utility’s interest in maximizing its shareholders’ wealth. The senators that seemed adamant about Facebook not being considerate of its user community seemed to come very close to wanting to treat Facebook like a utility, but were very far from considering Facebook’s investor needs.

If Congress wants to regulate Facebook like a utility, it will have to come to terms with the fact that Facebook has only one set of consumers; the firms that purchase its advertising services. The users that Congress is so concerned about are the fuel for Facebook’s advertising platform, specifically the information attached to each user. The user is extracted, organized, and packaged as a fuel cell for advertisers, creating the eyeballs to which company advertising is targeted.

Unlike coal, oil, or natural gas, the fuel for Facebook delivers itself voluntarily over broadband access infrastructure. Whether by wired or wireless access, these transmission pipes are a necessary part of Facebook’s “information utility” business. No fuel, no eyeballs for advertisers. As former Federal Communications Commission chairman Tom Wheeler argued, the consumer experience on the internet should be seamless. Consumers should be able to access websites like Facebook without broadband access providers throttling speeds or otherwise determining which websites would get access to the consumer at certain speeds and vice versa. Also, to create the seamless experience, broadband access providers had to exercise a great degree of transparency regarding their management practices while protecting the privacy of data used to fuel the information utilities, such as Facebook, that deliver services on the edge.

The problem with the Wheeler approach is that the framework balkanized regulation of the internet. Wheeler and other progressives favored archaic transparency and privacy of information rules based on the Communications Act of 1934 applied to broadband access providers. Edge providers, like Facebook, Google, and Twitter, were to remain outside of this regulatory framework where they would be allowed to innovate and not have their information utility business model threatened by AT&T, Comcast, or Verizon. But Facebook’s current dilemma, Russian use of its platform and the trade in its user private data by unauthorized third-parties, demonstrates that if policy makers and elected officials want a seamless internet that projects transparency, all stakeholders will have to be placed on a level regulatory playing field.

Transparency can’t end at a broadband access provider’s point of presence and then enter an edge provider’s black hole.  If consumers want their data to stay private and advocate for policies that keep that data private along and throughout the internet, policymakers will have to ensure that privacy policies extend from the modem in the consumer’s home to the servers that store the data that social media collects on its users. If Congress cannot deliver seamless regulation, then yesterday and today’s hearings will equate to the mindless twerking we see on Instagram.