Kevin Drum

Yes, Google Is a Little Bit Evil

Why I'm a purist when it comes to net neutrality and the Google/Verizon proposal.

| Wed Aug. 11, 2010 3:03 PM EDT

So what's the story on the Google/Verizon proposal that would allow carriers to offer high-speed networks to favored customers at a higher price than standard internet access? Would it spell the end of net neutrality?

There are two parts of the proposal. The first would essentially eliminate the principle of net neutrality over wireless networks. So within that piece of the internet, the answer is yes.

But what about the wireline network? There, the VG proposal is a little more subtle. Basically, they suggest that the current internet — which their document calls the "public internet" — should remain governed by strict net neutrality that treats everybody equally. However, carriers would be allowed to construct complementary networks that discriminate freely. The subtext here is that while well-heeled corporations could indeed buy better service, the public internet — i.e., the one we all know and love today — would be unaffected.

So: is this true? David Post is a strong supporter ("indeed, I'm a religious zealot") of the current end-to-end design of the internet, a design that essentially enforces net neutrality at the protocol level by placing all processing at the endpoints of the network and allowing the network itself to do very little aside from dumb transport of bits. Here's his take:

The problem is that there are many things an E2E inter-network (like the one we have) can’t do that people want their inter-network to do and would pay to have it do, and businesses serving those people want to provide those things. Things like guaranteed delivery of packets; the E2E network can’t promise that your packet will arrive at its destination, because that would require the network to keep track of your transmission as it moves along....[etc.]

The problem then boils down to: is there a way to preserve the E2E network — the open, nondiscriminatory inter-network — while simultaneously allowing people to get the services they want? Now in fact, that’s not exactly the question, because we know the answer to that one. There are already thousands, hundreds and hundreds of thousands, of non-E2E networks that do lots and lots of internal processing and provide lots and lots of services the E2E Internet does not provide. Your cell phone provider’s network, for instance. Most corporate wide area networks, for instance. Obviously, if Verizon wants to build a separate network and offer all sorts of glorious services on it, it can do so. The real net neutrality problem is this: if Verizon uses the Internet’s infrastucture to provide those services, will that somehow degrade the performance of the E2E Internet or somehow jeopardize its existence? Put another way: if Verizon can figure out a way to provide additional services to some of its subscribers using the Internet infrastructure in a way that does not compromise the traffic over the E2E inter-network, why should we want to stop them from doing that?

I think this is a good way of putting the question, though I'd expand it a bit. First, there's a technical question: can Verizon (and other carriers) segregate traffic over current backbones without degrading the performance of other traffic? I'm skeptical on fundamental grounds, but as Post says, there's always the chance that "technological innovation can do things that I usually cannot foresee." And it's certainly true that content delivery vendors like Akamai already provide high-speed access for a fee by pushing the boundaries of the current architecture of the internet as far as it will go. So maybe Post is right. But there's also an economic question: if carriers put all their capital development into high-speed dedicated networks, does this mean they'll simply let the current public internet deteriorate naturally as traffic increases but bandwidth doesn't keep up? That seems pretty likely to me.

If you're a pure libertarian, your answer is, "So what?" If there's a demand for high-performance public access, then the market will deliver it. If there's not, then there's no reason it should. But there's a collective action problem here: if the public backbone deteriorates, there's nothing I can do about it. As an individual, obviously I can't afford the kind of dedicated high-speed network that Disney or Fox News can. But the public backbone is a shared resource. Unless lots of my fellow users are willing to pay for high-speed service, I can't get it. And if access to most of the big sites is fast because they're paying for special networks, what are the odds that people will care all that much about all the small sites? Probably kind of slim.

Again: who cares? If most people don't care much about high-speed access to small sites as long as they have fast access to the highest-traffic sites, then that's the way the cookie crumbles. There's no law that says the market has to provide everything Kevin Drum wants.

Still, there are real benefits to providing routine, high-speed internet infrastructure to everyone. It means that small, innovative net-based companies can compete more easily with existing giants. It means schoolchildren can get fast access to a wide variety of content, not just stuff from Microsoft and Google. It means we have a more level playing field between content providers of all kinds. Sometimes universal access is a powerful economic multiplier — think postal service and electricity and interstate highways — and universal access to a robust internet is to the 21st century what those things were to the past. If, instead of an interstate highway system, we'd spent most of our money building special toll roads for Wal-Mart and UPS, would that have been a net benefit for the country? I'd be very careful before deciding that it would have been.

For now, then, count me on the side of a purer version of net neutrality, in which the backbone infrastructure stays robust because everyone — including the big boys — has an incentive to keep it that way. I'm willing to be persuaded otherwise, but Verizon and Google are going to have to do the persuading. And it better be pretty convincing.

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A Nuclear Iran

| Wed Aug. 11, 2010 1:12 PM EDT

Here is Jeffrey Goldberg on the likely consequences of an Israeli strike on Iran's nuclear sites, which he estimates is 50% likely within the next year:

They stand a good chance of changing the Middle East forever; of sparking lethal reprisals, and even a full-blown regional war that could lead to the deaths of thousands of Israelis and Iranians, and possibly Arabs and Americans as well; of creating a crisis for Barack Obama that will dwarf Afghanistan in significance and complexity; of rupturing relations between Jerusalem and Washington, which is Israel’s only meaningful ally; of inadvertently solidifying the somewhat tenuous rule of the mullahs in Tehran; of causing the price of oil to spike to cataclysmic highs, launching the world economy into a period of turbulence not experienced since the autumn of 2008, or possibly since the oil shock of 1973; of placing communities across the Jewish diaspora in mortal danger, by making them targets of Iranian-sponsored terror attacks, as they have been in the past, in a limited though already lethal way; and of accelerating Israel’s conversion from a once-admired refuge for a persecuted people into a leper among nations.

Well I'm sold. Who wouldn't be? But this is basically all boilerplate: everyone acknowledges that an Israeli attack on Iran would carry massive blowback. What's more, Israel is only barely capable of carrying out such an attack since Iran's facilities are at the far edge of the combat radius of its F-15 and F-16 jets. So why consider it? Here's Goldberg's summary:

Israeli policy makers do not necessarily believe that Iran, should it acquire a nuclear device, would immediately launch it by missile at Tel Aviv....The challenges posed by a nuclear Iran are more subtle than a direct attack, Netanyahu told me. “Several bad results would emanate from this single development. First, Iran’s militant proxies would be able to fire rockets and engage in other terror activities while enjoying a nuclear umbrella.....Second, this development would embolden Islamic militants far and wide, on many continents, who would believe that this is a providential sign, that this fanaticism is on the ultimate road to triumph.

“You’d create a great sea change in the balance of power in our area,” he went on. An Iran with nuclear weapons would also attempt to persuade Arab countries to avoid making peace with Israel, and it would spark a regional nuclear-arms race. “The Middle East is incendiary enough, but with a nuclear-arms race, it will become a tinderbox,” he said.

Other Israeli leaders believe that the mere threat of a nuclear attack by Iran—combined with the chronic menacing of Israel’s cities by the rocket forces of Hamas and Hezbollah—will progressively undermine the country’s ability to retain its most creative and productive citizens. Ehud Barak, the defense minister, told me that this is his great fear for Israel’s future....“Our young people can consciously decide to go other places,” if they dislike living under the threat of nuclear attack. “Our best youngsters could stay out of here by choice.”

I assume this is the best case they can make, and it's pretty unconvincing. In fact, the only compelling part of it is the part that's always been most compelling: that it might spark a nuclear proliferation nightmare. "If Iran gets a nuclear weapon," Hillary Clinton declared a few months ago, "then other countries which feel threatened by Iran will say to themselves, ‘If Iran has a nuclear weapon, I better get one, too, in order to protect my people.’ Then you have a nuclear arms race in the region." Saudi Arabia is usually touted as the most likely country to follow up, followed by Turkey.

This is what I was talking about when I said that I'd believe American attitudes toward foreign adventurism had changed only "when something actually happens overseas, a president tries to build support for intervention, and Congress and the public—including Joe Klein and me—balk." But I'm not sure. Will Joe Klein and I — and most of the rest of the country — balk at this if and when the time comes? Probably. But I'd be less than honest if I said I knew for sure.

Goldman Sachs Still in the Money

| Wed Aug. 11, 2010 11:40 AM EDT

Back when the financial reform bill was passed, I said that if bloated finance industry profits declined over the next few years that meant reform had probably worked. If not, not. It's still too early to know if that's going to happen, but today the LA Times reports on a bellwether:

As Wall Street scrambles to find the best and most profitable way to operate under the new financial reform law, Goldman Sachs Group Inc. — the firm that was expected to suffer the most under the legislation — could emerge practically unscathed.....Top Goldman executives [have] privately advised analysts that the bank did not expect the reform measure to cost it any revenue.

....Richard Bove, a bank analyst at Rochdale Securities, said he had changed his view of the law's effect on Goldman. "I thought this company was going to be really harmed by this bill; now I've figured out that it's not going to happen," he said. "They should win big here."

....Some on Wall Street had predicted the reform would trigger an exodus of traders and executives to hedge funds and other private firms that will not fall under the jurisdiction of the new regulatory regime. But with the adaptations the banks have been making, they have so far persuaded most of those employees to stay, industry insiders say.

Among those staff members, "some of the anxiety that was tied to this bill really dissipated after it was signed," said Ron Geffner, head of the financial services group at New York law firm Sadis & Goldberg.

Who knows? Maybe Goldman really is just smarter than all the other guys, and they're going to prosper even as the entire industry shrinks. Anything is possible. But this is really not a healthy sign.

Good Morning!

| Wed Aug. 11, 2010 11:00 AM EDT

The Washington Post surveys the global economic scene following yesterday's anemic Fed action:

Overnight in Asia, China released data showing that its economy was beginning to cool rapidly....The government also announced a looming economic problem: the inflation rate spiked 3.3 percent in July, amid flooding that disrupted food supplies.

....In Europe, the Bank of England lowered its GDP growth forecast for 2011 to 3 percent annually, down from 3.4 percent, saying the country faces a "choppy recovery."

....In the morning, there was more bad news from a third continent: the United States. The Commerce Department said the trade deficit ballooned more than analysts expected in June, after the stronger dollar made it easier for people in the U.S. to snap up cheaper exports from countries such as China. The gap widened to $49.9 billion in June, up from a revised $42.0 billion in May.

No worries, though. The Fed and congressional Republicans will do something eventually. Maybe. Best to wait until the elections are over, though.

Overdraft Justice

| Wed Aug. 11, 2010 1:17 AM EDT

Here's a tidbit of good news:

Wells Fargo & Co. should pay about $203 million to customers who say the bank manipulated debit-card transactions without their knowledge to increase revenue from overdraft fees, a federal judge ruled....Wells Fargo changed the way it treated customers' daily debit transactions and cash withdrawals in December 2001, according to the lawsuit filed in 2007. Transactions with the highest dollar amount posted first, rather than in the order they occurred.

I'm pretty sure this is the result of a suit brought against Wachovia, which was purchased by Wells Fargo a couple of years ago. In any case, the practice of reordering debit card transactions has been fraudulent from the beginning, and I'm glad to see a judge doing the right thing here. (More about overdraft reordering here and here.) Hopefully the award won't get knocked down by an appellate court.

The Long-Term Unemployed

| Tue Aug. 10, 2010 8:58 PM EDT

Matt Yglesias put up a chart today showing that unemployment is high among the less educated but pretty low among the well educated. Then this comment:

Virtually every single member of congress, every senator, every Capitol Hill staffer, every White House advisor, every Fed governor, and every major political reporter is a college graduate. What’s more, we have a large amount of social segregation in the United States — college graduates tend to socialize with each other. And among college graduates, there simply isn’t an economic crisis in the United States.

Here's another chart that, if anything, makes this point even more strongly: it shows the rate of long-term unemployment by educational level. I had to cobble it together with an interpolation or two,1 but I think it's pretty close to the mark, and what it shows is that for those with a high school diploma or less, the long-term unemployment rate is about 5-6%. If this is the social class you hang out with, then out of a circle of a few dozen friends and acquaintances you probably personally know four or five who are currently out of work, and of those perhaps two or three who have been out of work for six months or more and are getting truly desperate.

But if you're a college grad? Obviously this varies from person to person, but chances are that you know only a couple of people who have been out of work for even a couple of months and nobody who's been out of work for six months. Or, at most, maybe one. And chances are that even that one has a way better safety net — savings, parents, credit cards, etc. — than the blue collar folks who have been out of work that long.

Being out of work for a few weeks — or even a couple of months — is bad but not debilitating. It's long-term unemployment that makes people profoundly fearful and discouraged. But among the college-educated crowd, it barely exists. The fear just isn't there, and that makes it awfully easy to ignore.

1I'm not sure why BLS doesn't make this stuff more easily available. If anyone has the raw data for this and can provide exact numbers, let me know.

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Credit Reports and Employers: A Story From the Trenches

| Tue Aug. 10, 2010 5:22 PM EDT

Normally I omit names when I publish email from readers. But this one comes from Michael David Smith, and as you'll see, knowing his name is an important part of the story. So, with his permission, here's his email:

I hope you'll keep hammering away at the credit reporting agencies. Several years ago my then-boss mentioned to me off-handed, "We hired you even though you have terrible credit." I was rather stunned and said, "What are you talking about? I have perfect credit, and even if I didn't, how would you know?" He then informed me that they did a background check on me before hiring me, got a report saying I had terrible credit, but decided I was their best candidate anyway. I asked to see the report they had for me, and my boss dug it out of the HR files. It listed my name (which is a very common name shared by thousands of Americans), four different social security numbers, and about two dozen different credit cards I had allegedly fallen behind on.

So I called the credit reporting agency (I think it was Experian). It took forever to actually get a person on the phone who knew who knew what he was talking about, but when I finally did, the guy said, "Oh, yeah, that happens all the time with people who have common names. Your credit got mixed up with other people who have the same name as you. There's really nothing we can do about it."

Eventually, I filled out all sorts of forms contesting all the bad credit they had attributed for me and got them to send me a clean credit report that didn't mix me up with other Michael Smiths. But it was a long, painful process.

I think this is about par for the course for credit reporting agencies. Basically, they don't really give a shit if their information is correct. It's always seemed to me that you should be able to sue them for libel if they distribute false information about you, but outside my own personal fantasyland I assume that's impossible.

Tread Boldly

| Tue Aug. 10, 2010 4:53 PM EDT

Hot diggity. The GOP leadership has released "Tread Boldly," a guidebook for Republican members of Congress during the summer recess, and it includes a whole section called "Spending Restraint Solutions for Discussion." Finally, we'll get some details! So here they are:

Canceling unspent “stimulus” funds, saving up to $266 billion....Canceling excessive spending increases already in the pipeline....Cap Discretionary Spending....Freeze Congress’ Budget....Eliminate Unnecessary and Duplicative Federal Programs....Audit the Government for Ways to Save.

That's fairly underwhelming, no? I'll give them credit for the business about canceling unspent stimulus funds. That's actual money. But a spending cap? Attacking waste'n'fraud? Freezing the minuscule legislative budget? "Auditing" the government? These are the hoariest tropes imaginable for anyone who wants to sound tough on spending but avoid any actual, real-life spending cuts. Where's Social Security? Medicare? Medicaid? The Pentagon? Farm subsidies? Or any other actual, named program? Nowhere.

But there is support for extending the Bush tax cuts at a cost of $3.1 trillion over ten years. There's no problem being specific about that. For some reason, it's only spending they have trouble getting serious about.

(Via Hit & Run)

POSTSCRIPT: The cover is sort of....odd, too, isn't it? I guess all parties do the nostalgia thing now and again, but Ike and Churchill and Maggie and Reagan and Lech (what? no John Paul II?) and TR and Jack? Seriously? Two British prime ministers, and pride of place to two Republicans who modern party members wouldn't be caught dead endorsing?

And "Tread Boldly"? Not to get too ridiculous here, but when you think of "treading," is "boldly" really the first word that comes to mind?

Employers and Credit Scores: An Update

| Tue Aug. 10, 2010 3:32 PM EDT

A couple of weeks ago I blogged about an uptick in employers using credit scores as part of their background checks for new employees. Greg Fisher of creditscoring.com, who's no fan of credit scores, emails to say that "consumer reporting agencies all state that they do not provide credit scores for employment screening" and suggests I make a clarification.

Done! But let's dig a little deeper. According to a post on Fisher's site, "TransUnion does not provide a credit score for employment screening purposes." Another agency concurs: "ChoicePoint does not offer credit scores for purposes of employment-related background checks." Excellent. But wait. It turns out this doesn't mean that agencies don't provide credit checking services to employers. Lester S. Rosen, a lawyer and president of Employment Screening Resources, clarifies:

Even though credit reports are utilized by some employers for particular positions, a “credit score” is not a tool used for pre-employment screening. For pre-employment credit reports, the credit bureaus use a special reporting format that leaves out the credit score, along with actual credit card account numbers, and age.

Sure enough, Experian says its report "enhances traditional employment decision making tools by providing credit information which would not normally appear on an application, but may have an impact on job performance....The report includes the applicant's credit history, providing an objective overview of how financial obligations are handled over a period of time." And TransUnion touts its reports as "a completely unbiased account of a potential candidate’s financial background information....PEER traces the person’s credit history. PEER can then help you identify those applicants who are potentially financially overextended or on the brink of problems that could adversely affect their performance on the job."

So I stand corrected. Credit reporting agencies don't pass along your credit scores to prospective employers. They do pass along your entire credit history and specifically promote it as a way of weeding out problem candidates, but there's no credit score. Just your entire credit history.

Fed Meets, Does (Almost) Nothing

| Tue Aug. 10, 2010 2:43 PM EDT

The Federal Reserve met today and issued this forecast:

Information received since the Federal Open Market Committee met in June indicates that the pace of recovery in output and employment has slowed in recent months. Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising; however, investment in nonresidential structures continues to be weak and employers remain reluctant to add to payrolls. Housing starts remain at a depressed level. Bank lending has continued to contract.

That doesn't sound good. So what do they plan to do about this?

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions [...] are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

To help support the economic recovery in a context of price stability, the Committee will keep constant the Federal Reserve's holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities.

Before he left on vacation, Scott Sumner took a guess at four possible actions the Fed might take in today's meeting, and the good news is that they avoided his "Very Bad" scenario. Instead, we got this:

Bad: The Fed does something minor. Perhaps it promises to maintain the monetary base at current levels by purchasing T-bonds as the more unconventional assets are gradually sold off. The Dow falls slightly. (Actually, people are now so discouraged that this might be viewed as good news.)

Yep, that's what the Fed did. Still: it's better than very bad! The one-sixth of you who continue to be out of work or underemployed will surely take solace in that.