The subpoena (PDF) from U.S. Attorney Tim Morrison in Indianapolis demanded “all IP traffic to and from www.indymedia.us” on June 25, 2008. It instructed Clair to “include IP addresses, times, and any other identifying information,” including e-mail addresses, physical addresses, registered accounts, and Indymedia readers’ Social Security Numbers, bank account numbers, credit card numbers, and so on.

This gag order presents a particular problem for any news organization in a nation that prides itself on it’s freedom of the press.

Indeed, McCullagh says that news organizations are entitled to special limiting processes when they are subpoenaed, such as requiring “the express authorization of the attorney general.” Information gained from a subpoena issued to a news organization must also be limited in nature.

Apparently the Department of Justice isn’t at liberty to say why the subpoena was issued, although the demand request was retracted after the Electronic Frontier Foundation caught wind of the situation via an Indymedia server administrator and offered to represent the organization free-of-charge. The Attorney General’s office reportedly has no knowledge of the request. Naturally.

Two weeks later, the SSA sent a letter to CMS saying that Studnitz had in fact passed the background check, and that an “unspecified” computer error caused the false report. Unfortunately, CMS is under no legal obligation to re-hire her. In this tight labor market, she’s been having a rough time finding employment and has fallen behind on her mortgage payment.

A spokesperson for the FBI said that they have no idea how often such mistakes are made, because they don’t keep track of their error rate. Is it so unreasonable to expect that a government agency charged with collecting and maintaining data about its citizens keeps track of metrics like accuracy and error rate? Any responsible private company or nonprofit outfit would want to know these sort of performance statistics.

Government failure is nothing new; it’s been well-documented on OpenMarket before. Instances of public sector incompetence like this should have everyone worried as the government gets ready to take over the health care sector. If the government can’t accurately keep track of its own criminal data, why on earth would we want to trust them with private health data? When dealing with matters of life and death, or aggressive treatment vs. palliative care, this kind of “unspecified” error could have serious consequences. How will we hold governmental data-keepers accountable?

The new law dramatically expands the reach of the existing federal hate-crimes law that was already on the books, by getting rid of the requirement that a hate crime affect federally-protected activities to be prosecuted in federal court.  It also adds sexual orientation, gender, disability, and transgender characteristics to a law that was originally designed to protect racial minorities.

The hate-crimes bill was opposed by the U.S. Commission on Civil Rights for allowing the reprosecution in federal court of people found innocent in state court.  The Commission called the new law a “menace to civil liberties” because it is an end-run around constitutional guarantees against double jeopardy.

As explained earlier, the bill’s sponsors seek to use it to reprosecute people in federal court who have already been found innocent of hate crimes in state court, taking advantage of the “dual sovereignty” loophole in constitutional protections against double jeopardy.  Civil libertarians like Nat Hentoff and Wendy Kaminer thus object to the bill on double-jeopardy grounds.   Backers of the bill, like the Leadership Conference on Civil Rights and Commissioner Michael Yaki, supported the bill partly as a way of prosecuting all over again people who were either found not guilty, or who were convicted only of ordinary crimes, while being acquitted of hate-crimes (like the teenagers acquitted of hate crimes in the Shenandoah incident, and the California case of Joseph Silva and George Silva).

Such re-prosecutions can be an enormous waste of money, and grossly unfair to the people who are reprosecuted, driving them into bankruptcy to pay lawyers to represent them all over again when they have already been found innocent in state court after an expensive trial.  When the government re-prosecutes someone, it gains an enormous tactical advantage over the defendant from using the prior prosecution as a test-run, even if the defendant is innocent — making a guilty verdict possible even if the defendant is in fact innocent.

The bill also raises serious constitutional federalism issues under the Supreme Court’s Morrison decision.

Passage of the bill was aided by lousy reporting, in which some journalists, like Reuters, depicted the bill as simply a harmless measure to add sexual orientation to the list of protected characteristics covered by the federal hate-crimes law, ignoring its many other, far more important (and dangerous) changes to federal hate-crimes law.

Many supporters of the hate crimes bill want to allow those found innocent to be reprosecuted in federal court. As one supporter put it, “the federal hate crimes bill serves as a vital safety valve in case a state hate-crimes prosecution fails.” The claim that the justice system has “failed” when a jury returns a not-guilty verdict is truly scary and contrary to the constitutional presumption of innocence and the right to trial by jury.

But it is a view widely shared among supporters of the hate-crimes bill. Syndicated columnist Jacob Sullum pointed out in 1998 that Janet Reno, Clinton’s Attorney General, backed the bill as a way of providing a federal “forum” for prosecution if prosecutors fail to obtain a conviction “in the state court.”

Supporters of the hate crimes bill also see it as a way to prosecute people even in cases where the evidence is so weak that state prosecutors have decided not to prosecute. Attorney General Eric Holder has pushed for the hate crimes bill as a way to prosecute people whom state prosecutors refuse to prosecute because of a lack of evidence. To justify broadening federal hate-crimes law, he cited three examples where state prosecutors refused to prosecute, citing a lack of evidence. In each, a federal jury acquitted the accused, finding them not guilty.

As law professor Gail Heriot notes, “Some have even called for federal prosecution of the Duke University lacrosse team members–despite strong evidence of their innocence.”  Advocates of a broader federal hate-crimes law have pointed to the Duke lacrosse case as an example of where federal prosecutors should have stepped in and prosecuted the accused players — even though the state prosecution in that case was dropped because the defendants were actually innocent, as North Carolina’s attorney general conceded (and DNA evidence showed), and were falsely accused of rape by a woman with a history of violence (including trying to run over someone with her car) and making false accusations.

The Obama administration has long supported the hate-crimes bill, which it used as a wedge issue in the 2008 election.

As law professors like Jonathan Turley and Eugene Volokh have noted, the Obama administration recently urged restrictions on hate speech at the United Nations, joining in calls to treat such speech, protected by the First Amendment under Supreme Court rulings, as a human-rights violation in violation of international human-rights treaties. In the U.S., college hate-speech codes have been used to discipline students for criticizing affirmative action, discussing the racial implications of the death penalty, and calling homosexuality immoral.  In Canada and Britain, hate speech laws have been used to punish religious criticism of Scientology and homosexuality.

That’s a flagrant violation of the First Amendment, but the lawsuit was filed in state court in Baltimore, where the judges are very liberal, so who knows if ACORN’s lawsuit will be dismissed. Even if it is, the lawsuit will cost the whistleblowers thousands of dollars in lawyers’ bills. The Baltimore City prosecutor has already expressed hostility to the whistleblowers who exposed ACORN’s wrongdoing, threatening to prosecute them under a state “privacy” law restricting audiotaping.

(Similar “privacy” laws in Massachusetts have been used to shield kidnappers calling in ransom demands, and police abusing motorists!).

I earlier discussed some of the First Amendment issues here. A commenter at National Review argued that the lawsuit is meritless even if you ignore the First Amendment.

The Supreme Court has held that privacy lawsuits, and lawsuits in general, can’t be based on protected speech, in cases like Bartnicki v. Vopper.  That principle was extended by today’s appeals court ruling in Snyder v. Phelps overturning a Maryland jury’s $5 million damage award for intrusion-upon-seclusion, and an earlier ruling limiting state audiotaping laws in Jean v. Massachusetts State Police (2007).

The IRS just ended its controversial relationship with ACORN, which earlier had its housing funds cut-off by Congress over a recent controversy, and is now embroiled in a tax evasion scandal.

ACORN has long received taxpayer money despite a history of financial fraud and voter registration fraud. ACORN helped spawn the mortgage crisis by promoting “liar loans.”

ACORN is a left-wing group that launched Obama’s career as a community organizer. He has long-standing ties to ACORN, and an ACORN affiliate received received $800,000 from Obama’s campaign. ACORN stands to profit greatly from Obama’s financial-regulation proposals, which would strengthen the Community Reinvestment Act (The Community Reinvestment Act is extremely harmful to banks and prudent lending, pressuring banks to make risky, low-income loans).

ACORN affiliates would also likely profit from Obama’s health-care plan, which contains subsidies for community organizers. (Obama’s health care plan would raise taxes, break promises, increase the deficit, destroy many inexpensive health-care plans, and take away important freedoms.)

Now, Patricia Coats Jessamy, the Baltimore City State’s Attorney, is trying to silence those who have broadcast the video footage, relying on a Maryland law that violates the First Amendment. She is not interested in prosecuting the crimes recorded on the video. Instead, Jessamy, an ardent Obama supporter, wants to prosecute the makers of the undercover video — and those citizens, bloggers, and journalists who broadcast it or “use” or “disclose its content.”

In her public statement, she complains that the video may “possibly have been obtained in violation of Maryland Law . . . Article §10-402, which requires two party consent. If it is determined that the audio portion now being heard on YouTube was illegally obtained, it is also illegal under Maryland Law to willfully use or willfully disclose the content of said audio. The penalty for the unlawful interception, disclosure or use of it is a felony punishable up to 5 years.” (Similar laws in Massachusetts have been used to shield kidnappers calling in ransom demands, and police abusing motorists!).

It is obvious to me as an attorney that Patricia Jessamy is  threatening a selective prosecution.  The First Amendment generally overrides state privacy laws insofar as they would prevent disclosure of public corruption and discussion of matters of public concern, as the Supreme Court has made clear in cases like Florida Star v. B.J.F. (1989), Bartnicki v. Vopper (2001), and Time v. Hill (1969).

But as the Examiner notes, “Maryland is a one-party state,” where Democrats are in charge of all three branches of government. And it is conceivable that the Maryland courts will let Jessamy use an obscure technicality to harass the makers of the video for years, despite the First Amendment.

There is a legal doctrine called “Younger abstention,” under which federal judges, based on “federalism,” won’t issue injunctions against state-court prosecutions, even if they violate the First Amendment or other constitutional provisions, unless the prosecution is not only unconstitutional, but “patently” and “flagrantly” unconstitutional. That is an extraordinarily high standard to meet, which insulates many unconstitutional state prosecutions from being challenged in federal court.

If Jessamy prosecutes YouTube, which is hosting the video, or the bloggers and journalists who are broadcasting it, this standard will be met, and a federal judge will likely issue an injunction against her wrongdoing. (See In re Providence Journal Co., 820 F.2d 1342 (1st Cir. 1987) (issuing injunction); Jean v. Massachusetts State Police, 492 F.3d 24 (1st Cir. 2007) (disseminating audiotape that was banned by state “privacy” law was protected by First Amendment)).

But if she just prosecutes the makers of the undercover video, like filmmaker James O’Keefe, it is conceivable that federal judges will refuse to intervene, saying that her violation of the First Amendment, while proven, is insufficiently “patent” and “flagrant” to justify an injunction against her (although I would argue to the contrary).

If that happens, she may be able to harass the makers of the video for years, until state prosecutions or convictions are overturned by the U.S. Supreme Court.  Even after their convictions or prosecutions are overturned on First Amendment grounds, she will be immune from any personal consequences, since prosecutors have “absolute civil immunity” against damages for constitutional violations they commit in the course of their jobs.

“Younger abstention” doesn’t apply until the prosecutor actually brings charges. So the makers of the video could seek a federal court injunction against their impending prosecution, right now, if they had attorneys. But the makers of the video appear to be conservative activists, not liberals, so the ACLU likely won’t jump at the chance to represent them (although it may eventually file an amicus brief on their behalf if they end up being prosecuted).

Dear Sir,

As an international bank robber, may I say how much I deplore the underhanded way in which financial institutions are able to keep private details of how much money each of their clients has deposited. This makes my job so much harder. Indeed, we in the bank robbing community are working to improve our image after decades of negative coverage from conservative media and this could be enhanced by increased transparency, which would enable us to target only those banks and clients who have, for example, profited from the subprime mortgage market. We are also environmentally conscious. In our efforts to reduce greenhouse gases not only do we now use smokeless explosives, but transparency would enable us to leave alone the accounts and deposit boxes of carbon offset traders and Al Gore’s Hollywood friends.

Sincerely,
Machine Gun Kelly, Ma Baker, Bonnie Parker and Clyde Darrow

See also: Baptists and Bootleggers

I personally encourage the president to establish a White House commission on public media.

and then:

A truly free and independent press is the red beating heart of democracy and freedom.

He’s right that the free press is a “watchdog on power.” But that’s not compatible with the idea that, as reported, “the government make an effort to ensure the survival of the free press.” A press funded, promoted, propped up, subsidized by government is not a free press. Nor is it in any position to be a watchdog; it’s more likely to become a megaphone for the states preferred ideas and expansion of government in other spheres, like health care, energy, finance, telecommunications, scientific research and policy and so on.

Democracy as a concept and political system is not at stake, as Rather thinks, when a particular business model engaged in public communications and broadcasting suffers at a particular point in history. It’s been beaten to death, but everyone knows the transformative importance of the broadband Internet and its role in making voices heard that never had a chance when Rather and his two rival channels dominated the news and airwaves for 30 minutes each evening.

We already have a Public Broadcasting System that takes taxpayer money; We have a Federal Communications Commission engaged in expanding its reach and intervention rather than–why not say it–yielding to the First Amendment and the blessings of competing ideas, content and broadband business models. Dan Rather is playing with fire in advocating marriage or co-habitation between the national government and media, it’s a dangerous idea. I once got riled up about issues like this in a paper I wrote called “Is the Internet Bad for Democracy?“:

Nothing in government’s legitimate scope qualifies it as a fountain of superior, purer information or a source of social cohesion. In fact, it’s more prone to corruption. Governments are well known for censorship and propaganda, or control, like the mandating of library filters and ratings for movies, music and videogames.

Most fundamentally, [intervention] fails because it rests on the notion that capitalism and freedom are inimical to civil society and the diffusion of ideas, when they are, in fact, the prerequisites. We cherish a free press, dissent, and debate precisely because governments can threaten these values. We need markets to maximize output, including that of true and useful “public” information. The inclination of some academics and public servants to despise the commercial Internet grows tiresome, not just because they often occupy a stance parasitic with respect to the commerce they denounce, but because their notion of public spaces would enshrine a political rather than civil view of social interactions.

An article

It is rare public criticism of China’s policy, but it’s not brave, it will do nothing to change the policy, and reveals the danger of doing business in a country that has no respect for individual or economic freedom. In order for a business to be successful it needs to be able to meet market demands and offer products and be free from random government intervention. To that end, a business that hinges its survival on the Chinese market has only itself to blame if it fails.

Signatories on the letter complained that, due to the size of the Chinese market, and their reliance on revenue from sales in that country, they have “no choice but to accommodate the rule.” I call B.S. on that. If they really want to protect their ability to make long-term profits, they should stand on principle and demand the Chinese government respect their right to be the sole decision maker on how they operate and serve their consumers. They should demand that in every country and every instance it becomes an issue.

If they had held fast to that principle from the beginning, businesses would have never entered the Chinese market. Alas, the size of that market was too tempting for the short-sighted, and in pinning their success to China they bound themselves to an irrational and inconsistent regime and enslaved their business to the whim of a dictator.

Signatories in the letter to the Premier complain that the green dam-youth mandate will hurt their ability to profit in China. In reality, they are done for whether the mandate goes into effect or not. If it does, a black market offering customers what they want will spring up and severely undercut the profit of those companies that choose to comply with the mandate. If it is shelved, businesses might continue to make a profit in China, but not for long. It’s only a matter of time before the unpredictable government comes up with another plan that interferes with their ability to compete in the market.

The difference is, if they choose ‘money-today’ over protecting the rights of their customers in China and decrying any and all government interference in the market they are simply perpetuating the situation and guaranteeing that the Chinese market remains unpredictable and meddlesome.

So, what can companies do if they already made the mistake of getting mixed up with China? Instead of groveling before the Premier, begging for the ability to continue profiting from their poorly thought out business model, they ought to begin pulling out of the market. They should find other markets or reduce their operation to a size that is supported by markets that more reliably protect the rights of citizens and businesses to exchange goods freely.

As Gena Gorlin noted in her article, a business that stands on principle will be more profitable in the long term than a business that compromises in order to obtain short-term revenue. That principle is the right of a business to offer what it thinks customers want at prices it thinks they’ll pay. Without that ability how else can it compete? Do they expect the government to force Chinese citizens to buy their products? Companies that compromise on that principle have already given up on being successful businesses in the long-run.

I say kudos to the coalition for vocally opposing the mandate, but shame to any business that continues to deal with China on any other term than absolute freedom.

Those entrusted with our privacy often don’t have much incentive to respect it . . . What this all means is that protecting individual privacy remains an externality for many companies, and that basic market dynamics won’t work to solve the problem. Because the efficient market solution won’t work, we’re left with inefficient regulatory solutions.

Privacy is indeed an externality, but customer satisfaction is an externality, too. The whole point of markets is that they help us work these things out. What Mr. Schneier has described is not a market failure but in fact the original sin of the regulator: the assumption that, though the market chose publicity, it should have chosen privacy. We can’t make that claim without evidence.

Before we go making assumptions about what homo economicus might or mightn’t choose, we should remind ourselves of some of the benefits of publicity. Search engines like Google can give me tailored results, and targeted advertising funds many of their nifty services. When TransUnion vouches for me, I can reliably get a loan from a banker I’ve never met. If I’m married with kids, insurers who know that can offer me cheaper policies. These benefits are substantial, and we should be quicker to assume that the market values them than that it has ignored the associated costs.

There are plenty of good reasons for choosing privacy, and for the most part that choice is open to us. It’s still legal to pay with cash, walk around without ID, and forgo health insurance. It can be monstrously inconvenient, but that’s the price we pay when we make unusual choices. Of course, these options may not be legal for much longer, and there are already many legally required disclosures that should include privacy requirements–car insurance and airplane tickets, for example. There’s plenty of work to be done to make sure privacy stays legal, but that’s a long way from making it mandatory.

Mr. Schneier acknowledges several of the inefficiencies of regulation, to his credit, but he misses the single largest. None of us have exactly the same priorities when it comes to privacy, but when the choice is made for us by legislation, we’re stuck with a one-size-fits-all regime. As Mr. Schneier points out himself, there are also limits to how much regulation can accomplish. A privacy violation is the act of revealing information–not using it–and without any “IRS misplaces laptop” headlines, it’s usually impossible to tell whodunnit.

And of course, that’s the real problem here. If we don’t act like private people, we won’t be private people. I don’t share Mr. Schneier’s willingness to regulate, but he is absolutely right that the reality of privacy has changed too quickly for our norms to keep up. Posting drunken photos on Facebook is one of the stupidest things we can do with a computer, yet we do it all the time, because we don’t appreciate the consequences. It’s not just a lack of judgment, either. Everyone knows not to send cash through the postal service, but most of us still don’t have the slightest clue how email works. This too shall pass.

When man discovered fire, he learned not to burn himself. When we brought electricity into the home, we learned not to shock ourselves. If and when our online indiscretions come back to haunt us, we’re going to learn the value of privacy, and how to get it. Once we do, the market will bend over backwards to sell it to us. But insulating us from the consequences of our decisions can only make things worse.  If we try to save ourselves the trouble of adjusting, if we put our chips on government to simply make the problem disappear, we won’t be ready when the stakes are a lot higher.

This practice may run afoul of federal wiretapping statutes that bar service providers from “intercepting” private messages, according to an article that appeared on Wired Threat Level last week. Wired quotes Kevin Bankston, a senior attorney for the Electronic Frontier Foundation, who explains that Facebook’s practice raises “serious questions about whether Facebook is in compliance with federal wiretapping law.”

It’s important to draw a distinction between the traditional notion of “wiretapping” and Facebook’s “interception” of user messages, which doesn’t involve any human intervention. Regardless of how the courts may interpret ancient laws like the 1986 Electronic Communications Privacy Act, an automated computer system flagging and deleting certain strings from user messages simply isn’t comparable to a third party secretly listening in on a private phone conversation.

Besides, Facebook makes clear to its users from the get-go that their messages and postings are subject to a set of rules (which Facebook lays out in plain English). If Facebook believes a message or posting is against the rules, it can block or remove it. This is not an unreasonable rule; many online discussion forums have enforced similar policies since the Web’s early days. Such filtering is possible only if sites can “examine” messages to identify misconduct.

Critics of Facebook’s filtering policies have rightly pointed out that even legal Pirate Bay links are being blocked. While this is a valid argument, it belongs in the Facebook’s Site Governance page - not in a court of law. It isn’t the role of government to second-guess content judgments reached in good faith by social networking sites. Facebook must weigh a range of competing concerns in deciding how to cater to its hundreds of millions of diverse users. The same message that one user might consider “spammy” or malicious might be seen in a totally different light by another user. Add into the equation concerns over reputation and even potential copyright infringement liability, and it’s easy to see why Facebook has to make tough - and controversial - decisions all the time.

While I agree with Bankston that the legal ramifications of Facebook’s practices are far from clear, I’m concerned about the prospect of wiretapping laws being used against websites that moderate communications between users. If filtering Pirate Bay links from user messages constitutes illegal wiretapping, then it would seem that any social network or discussion forum that monitors and removes content from user-to-user communications would be in violation of federal law.

What would it mean for the Internet if websites were barred from moderating messages sent between users? AOL might not be able to “kids only” chat rooms; instant messaging services might be even more spam-ridden than they already are; and yoursphere, a social-networking site “just for kids,” likely wouldn’t even be able to exist.

Decisions about how to operate private online ecosystems are best left to individual firms competing in an open marketplace. Prohibiting website operators from moderating user messages may not bother people who don’t mind spam or porn (or Pirate Bay links), but what about people who desire a social network in which certain kinds of speech are off-limits?

One of the best aspects of the Web is that choices are abundant. If you don’t like one social networking site’s policies, you can go someplace else. Users can already send around links to Pirate Bay torrents through countless other social networking sites, email providers, and instant messaging services. Gmail, AIM, Ning, and Skype are just some examples of free online services that do not censor Pirate Bay links. Heck, if none of these options are satisfactory, you can even build your very own social network with free software like BoonEx and spread around all the Pirate Bay links you want.

In her speech, Hathaway did not say much about the administration’s policy changes, although published reporters indicate that Obama plans to create a powerful national cybersecurity directorate that would work through the Department of Homeland Security, establish a national cybersecurity recovery plan and resolve longstanding conflicts between agencies.

I remain suspicious of collectivizing and centralizing risk in governmental bodies, and of creating the impression that governments can protect private networks and infrastructure. We do need police forces (gov’t) but we also need the barbed wire and doorlooks that private enterprise provides in a competitive environment. When government assumes too much authority over the latter, we become less secure, not more. And some reports have indicated that both the administration and Congress are seeking complete government authority over private networks like power grids and computer network in the event of breaches. The privacy concerns are a separate matter that we address elsewhere, but in a CEI report called Preventing Identity Theft and Data Security Breaches: The Problem with Regulation, we put it like this:

Policymakers should recognize that data security requires not one-size-fits-all solutions, but the tailored answers that private actors can deliver. Every firm’s upstream suppliers and downstream customers increasingly demand better security. Like any other technology, security technologies, from biometric identifi ers to firewalls to encrypted databases, benefit from competition. Likewise, cybersecurity services, from consulting to insurance to network monitoring, benefit from competition. To reduce the impact of any given attack, policy makers should adhere to policies that, to the extent possible, “privatize” rather than collectivize.

The need to preserve a dynamic market role can be summed up in a single Cybersecurity Commandment:

Do not take steps in the name of security that make it:
(1) impossible to liberalize or deregulate infrastructure and networks or
(2) impossible or undesirable to self-regulate.

Government should not assert authority in ways that would make private sector assumption of security responsibility impossible in the future as technology advances or conditions change. And policy makers should be extremely careful not to create disincentives to self-regulation. If government ignores either aspect of the Cybersecurity Commandment, it will lead to both subpar information security and economic inefficiencies. Interference could also roll back important advances that have been made in the privatization of infrastructure and services over the past decades.

Even liberal Washington Post columnist Michael Kinsley can’t stand the Supreme Court’s liberal 6-to-3 ruling in Wyeth v. Levine, which let a patient sue an innocent drug maker for an injury caused by a physician’s assistant who disregarded repeated warnings by the drug maker. (The ruling indirectly “will cost lives“). As Kinsley notes,

“Diana Levine, a professional guitarist, showed up at the hospital for the second time in one day complaining of . . . hours-long spasms of ‘retching’ and ‘vomiting.’ She was injected with an anti-nausea drug called Phenergan. The label on Phenergan says six times, in different ways, some of them in boldface capital letters, that if Phenergan gets into the arteries, the result can be disastrous. Nevertheless, a physician’s assistant used the wrong method of injection, and Levine’s arm turned gangrenous and ultimately had to be amputated.”

“The drug company Wyeth has sold Phenergan, with Food and Drug Administration approval, since 1955. The official question in Wyeth v. Levine, decided last week by the Supreme Court (the quotes above are from Justice Samuel Alito’s dissent), was whether that federal government approval “pre-empts” a Vermont jury ruling in favor of Levine. The court said no. A more interesting question is: How did we end up with such a crazy system for making important decisions? . . .”

“What happened to Diana Levine is a tragedy and a scandal. But what did Wyeth do wrong? Is there any way the company could have stayed out of trouble? It’s unlikely. Phenergan has been legal for half a century. (If you Google the word “Phenergan,” the results include pages containing an ad for Phenergan online.) So if you can’t get them for the product itself, you nail them for a “failure to warn.” The basic fiction at the heart of the whole system of regulation by lawsuits is that people read and act on warning labels. But the FDA approved Wyeth’s original warning label and every change since. “Not good enough,” said a Vermont jury, and, incredibly, a majority of the Supreme Court agreed.”

The arbitrary litigation fueled by this decision will cost lives over the long run by discouraging medical innovation, notes Gordon Crovitz in the Wall Street Journal. Jim Copland and Paul Howard call the counterproductive Wyeth decision “a ‘cure’ worse than gangrene.”

Ted Frank calls the Wyeth decision the most anti-business decision in more than 40 years. Yet, amazingly, the liberal New York Times, which wants even more lawsuits, accused the Supreme Court of “reflexive deference to corporations“!!!

Greg Conko observes that the jury’s decision was baseless and undermined the FDA’s labeling process. “The physician’s assistant injected Phenergan into Ms. Levine’s artery, in direct contravention of six label warnings against arterial injection. More or sterner warnings against arterial injection would not have prevented Ms. Levine’s injury.” “FDA made a regulatory decision that the benefits of IV injection outweighed the risks, and the agency permitted the product to be labeled accordingly. . . letting a Vermont jury penalize Wyeth for not ruling out IV injection on Phenergan’s label is tantamount to letting a group of laymen over-rule FDA’s expert opinion regarding safety.” Yale Law School’s Peter Schuck similarly criticizes the Supreme Court’s decision.

Don’t expect any help from Congress. Incredibly, it is moving to abolish what little limits there currently are on state court lawsuits that undermine federal drug-labeling requirements. The day after the Wyeth decision, trial lawyer allies like Rep. Henry Waxman (D-Cal.) proposed legislation to completely abolish any preemption of such lawsuits, even in the exceedingly narrow circumstances where the Supreme Court admits preemption is appropriate.

Drug and device lawyers explain the Wyeth decision as being partly the judiciary’s reaction to the 2008 election, when liberal politicians friendly to lawsuits, and hostile to (often mythical) “deregulation,” made big gains. As the humorist Finley Peter Dunne noted a century ago, the Supreme Court reads election returns.

Workplace lawsuits also will rise. A costly comparable-worth bill backed by the Administration, the Paycheck Fairness Act, passed the House earlier this year on a largely party-line vote. And a law that largely eliminates the statute of limitations in pay-discrimination cases, the Lilly Ledbetter Fair Pay Act, was signed by Obama in January. Obama made false claims about the Supreme Court decision the Ledbetter law overturned (and the facts of that case), and broke campaign promises he made by signing it into law without the opportunity for public comment.

Obama also backs the so-called Civil Rights Restoration Act, which would radically rewrite federal discrimination law in several ways, such as scrapping limits on punitive damages (and allowing them in situations never before permitted by any federal court), and making schools liable for many more instances of “peer harassment” by students (increasing the pressure on colleges to adopt speech codes).

Other “radical employment law changes will create lots of work for attorneys,” according to the National Law Journal.

The economy-shrinking stimulus package Obama signed also contains multiple provisions creating new grounds for lawsuits. It contains increased damages and state attorney-general rights to sue under the burdensome and expensive HIPAA law, which contributed to the Virginia Tech shootings, has impeded public safety, and causes billions of dollars in losses due to pointless red tape. The stimulus package also contains vague and expansive whistleblower provisions allowing suits over actual or perceived wrongdoing.

The Administration also shows no interest in tempering the excesses of a law Obama supported, the Consumer Product Safety Improvements Act, which has shut down thrift stores and entire industries, and gives state attorney generals and their trial lawyer allies broad new powers to bring lawsuits over toys, clothes, and books, resulting in children’s books being thrown out and pulled from library shelves by the thousands.

In several important areas, his inclinations (judging from the cheers emanating from interest groups like PIRG and Center for Digital Democracy) lean toward substituting political “discipline” for what competitive markets offer.

He supports “opt-in” with respect to behavioral advertising, which we’ve often described as not-necessarily good for a lot of reasons. We’ll come back to this later.

He supports antitrust intervention with respect to firms like Intel (and watch out, Google), and favors destructive “conditions” on mergers. Nineteenth-century, smokestack-era antitrust, rather than withering, now seems dedicated to exploiting and hobbling large-scale transactions in ways that end up creating entities that would not emerge in free markets. Several mergers lately have resulted in such artificially constrained frankensteins, or suffered catastrophic delays. Thus “competition policy” (ha!) neuters the healthy competitive response to them that could have come about. (See my FCC comment on XM/Sirius in that regard.)

On “net neutrality,” we leap beyond whether markets are adequate to discipline errant behavior; here the starting point is the nominee’s doubt that even antitrust intervention is necessarily “adequate to the task”; thus the implication that new laws may be in order.

Let’s just take net neutrality for now. There are plenty reasons I think it’s an outrage to regulate price and access on networks and infrastructure; but just for the moment, the entire concept rests upon numerous (I often feel deliberate, in my less-charitable moods) misperceptions or misrepresentations about competitive markets and capitalism. These include but are not limited to the following: (Adapted from an FCC filing I made).

• Infrastructure companies and content companies are naturally and inherently at odds.
• Competition requires political force.
• Discrimination is bad with respect to network access, and such a thing as “non-discrimination” exists.
• Net neutrality is itself not a form of picking sides (or discrimination, as it were)
• Infrastructure companies should not control content; however, content companies, in conjunction with bureaucracies backed by legislation and regulation, should control infrastructure companies.
• Government enforced net neutrality spawns “openness”; market impulses do not.
• Communications flows (video, information, calls etc.) are maximized by neglecting, even blocking, the liberalization of and enforcement of property rights in grids.
• Networks themselves cannot be regarded as a competitive unit in any sense: only the movement of bits from point A to point B on a pre-existing network counts as competition. Networks best exist as passive husks, not dynamic forms of infrastructure wealth created, managed and duplicated in response to price signals and broader economic forces.
• “Market failures” matter, government failures do not exist (indeed, they are rarely acknowledged by the interventionist class).
• Infrastructure companies’ interest lies in not selling services, in not exploiting gains from trade with content companies whatever petty transitory jealousies may exist.
• Wall Street, rivals and consumers cannot react to discipline inefficient network management or generate new bandwidth infrastructure (I always call it “bandwealth,” but will remain passive.
• Agencies like FTC and FCC are better equipped than capital markets and a global economy to discipline ill-managed networks.
• Alternative, profit-driven modes of infrastructure organization matter less than regulating the mode that exists: User ownership of grids; liberalization of non-telecom network industries to enable wide-scale, cross-industry infrastructure consortia; “splintering” into and out of the public net by private carriers, all have little role to play and may safely be ignored.
• Moreover, regulatory interference will not undermine these alternative modes of discipline, or alter technological trajectories and the future trajectory or health of communications wealth in any harmful way.

So it’s remarkable, to me at least, that at a time when the economy needs “stimulus,” that we may now be required to divert attention to contend with a new artificial, entirely man-made and unnecessary hindrance to the expansion of the communications sector.

In December of 2007 the FTC notified the online advertising industry that Behavioral Targeting-style advertising was pushing the boundaries of privacy.  Their letter–entitled “Behavioral Advertising: Moving the Discussion Forward to Possible Self-Regulatory Principles”–should have made it abundantly clear that this was a warning shot and the hammer was about to drop.  The industry, quick to respond, and taking congressional action very seriously, announced yesterday (some thirteen months later) that they would seek self-regulation.

The announcement of the proposal to self-regulate came from a partnership between four advertising industry trade associations, including, American Association of Advertising Agencies (AAAA), the Association of National Advertisers (ANA), the Direct Marketing Association (DMA), and the Interactive Advertising Bureau (IAB).  They plan to work with the Council of Better Business Bureaus to develop their guidelines.

Behavioral advertising is not a new idea.  Advertisers have been seeking better ways to target market specific consumers since the first caveman opened a tool shop.  There is nothing wrong with this.  If I make widgets for men that work in coal mines in West Virginia, I’m going to set up billboards for my product outside the tunnel to the mine.  This is just good business sense.  But the modern computer age’s concern with targeted marketing is that it has become extremely personal, so personal that some are concerned with the privacy factor and how much personal data they may be giving up as they surf the web.

While surfing your favorite website, the site will send your browser (Firefox, Internet Explorer, Chrome, etc.) what is referred to as a “cookie”. It is essentially a small text file, quite harmless in nature, and is generally used to track things like web site shopping cart contents or personal settings on that website. It can, however, be used by advertisers enlisted on that site to determine what types of things you are interested in so that targeted marketing of ads can be implemented.

In these cases a cookie is sent to your machine from an advertiser on the site.  This creates a sort of road map for the advertiser of what you like based on the content of the website you were viewing.  Then upon viewing a different website, the advertiser can take the information it recorded about you from the cookie, and display adverts based on things you previously viewed that the advertiser assumes you would want to see.  What results is a totally personalized advertisement experience for you while you surf the web.

So where’s the rub?  While the identity of a user cannot be revealed by a cookie, a user that has registered with a website can be linked to a cookie.  What results is a privacy dilemma because instead of an anonymous individuals surfing habits being recorded, very specific information about who this person is could then be revealed. Additionally, the advertiser could also then tie a specific person to what they are looking at online.

“When you start to get into the details, it’s scarier than you might suspect,” Marc Rotenberg, executive director of the Electronic Privacy Information Center, a privacy rights group told The New York Times’ Louise Story. “We’re recording preferences, hopes, worries and fears.”

Most Internet companies would provide the rebuttal that a user’s account information was seen as just an ID number.  But the concern is that an ID number is attached to an account, an account contains the user’s personal info, and at some point the data could be accessed.  The privacy concern may be far fetched, or it could be completely legitimate.  It would all come down to the ethicality of the company.

So why the sudden movement toward action by the advertising trade associations after 13 months of ignoring the issue? Because PEOTUS Obama is days away from becoming POTUS. And rumors are that lobbyist fear behavioral targeted marketing will be the main privacy issue examined by Congress this year.

“There are no immune companies or business models from Capitol Hill or state regulation,” said Mike Zaneis, VP-public policy at the IAB.

Obviously the move is to get out in front of the issue. A self-regulating industry could deter Congress from considering legislation to legally enforce guidelines. But a self-regulated industry is also watch dogged by its own people. Only time will tell if they have the will power and character to maintain that approach, but it is certainly hoped for as less government legislation is the favorable outcome.

The information superhighway is a revolution that in years to come will transcend newspapers, radio, and television as an information source. Therefore, I think this is the time to put some restrictions on it.

Some things never change. Then it was content regulation, now neutrality, and returning soon, behavioral advertising.

Now Google, neutrality’s chief proponent in Washington, FCC and policy circles, wants to secure for itself its own “fast track” on the Web, in conjunction with telecom and cable companies.

It should do so as rapidly as possible; so should everyone else. Only Washington can screw up this new elevation of the Web’s capabilities.

Neutrality advocates always invoke the sanctity of “dumb pipes,” But it requires government force to keep pipes dumb. It’s more appropriate to embrace a competitive dimension upholding the possibility of the “genius” of pipes. Price and service differentiation, such as paying less for non-vital transmissions and more for critical ones, will become increasingly critical to tomorrow’s online experience. So will the fusion of content and infrastructure companies.

The handwringers worry: “For computer users, it could mean that Web sites by companies not able to strike fast-lane deals will respond more slowly than those by companies able to pay.”

But such “discrimination” is not only perfectly consistent with vastly greater openness and speed than we enjoy now, it’s probably a pre-requisite for it; nothing about fostering smart pipes is incompatible with retaining “dumb” ones as consumers desire.

Indeed, the “background hum” of the Net is always rising; few of us use dialup anymore, and we didn’t need neutrality to escape it. Special deals like Google’s, as well as future proprietary services that use Internet technology, but may or may not ride the same pipes as the “capital-I” Internet, increase the Net’s overall functionality. Policy should not discourage the possible emergence of such a “Splinternet” by catering to the old-school model of infrastructure socialism and sleepy-headed “openness.”

Fostering infrastructure wealth—of both the proprietary and open kinds—is the only valid public policy goal, the only avenue to a constant escalation in the basic capabilities of the Internet as a whole. Neutrality is the enemy of this challenge.

So far, Google and the infrastructure firms are scared of regulators and are “reluctant so far to strike a deal because of concern it might violate Federal Communications Commission guidelines on network neutrality…’If we did this, Washington would be on fire,’” one insider said.

But FCC’s own guidelines are anti-consumer and anti-infrastructure; later we’ll explore more reasons why.

Apple's 1984 "Big Brother" ad

An article over at Ad Age brings up an angle on the whole auto industry bailout probably not considered much before.  The fact that a yet-to-be-appointed “car czar” will have control over a multibillion dollar advertising budget for the big three.  Under the guise of “oversight,” this would effectively “Create World’s Most Powerful Marketing Exec[utive].”  

The draft rescue plan for Detroit sent to the White House by Congress yesterday calls for the appointment of a “car czar” who will oversee the Big Three automakers’ expenses over $25 million — which, by extension, would include media buys. Based on Advertising Age’s estimates of spending by General Motors Corp., Chrysler and Ford Motor Co., that would give the as-yet-unnamed car czar control over some $7.3 billion in marketing spending in the U.S. alone.

The most disturbing thoughts about this (particularly to those concerned with liberty) are provoked here: 

The car czar would wield a budget more than double those of AT&T, Verizon, Unilever and Johnson & Johnson, which round out the nation’s top five marketing spenders, and give the car czar more clout with media and agencies than such famed names in marketing as Walmart Chief Marketing Officer Stephen Quinn and Anheuser-Busch VP-Marketing Dave Peacock.

…If the bailout goes through, agencies that work for the Big Three will essentially be toiling on a government account, with all the associated red tape and strictures that involves.

So there you have it.  We should all be concerned about this for many reasons.  As mentioned, the large ad budget that comes with a czar-controlled U.S. auto industry will allow a government bureaucrat to wield unbalanced and unchecked influence over not only who gets ad contracts, but what media outlets get ad money. The czar can simply refuse to give business to an advertising agency who works for a foreign competitor of the big three (or a “non-compliant” corporation), or refuse to pay money to show ads on outlets that they deem “unfriendly” to the administration or its mission.   This will be an unequivocal disaster.  We have already seen the lengths to which administrations (and pre-administrations) have gone to influence and/or silence media they do not like.  What kind of power plays do you think are possible when the administration’s appointee controls a major source of media outlets’ ad revenue? Whatever it ends up being, it won’t be pretty.

I’m very, very skeptical of their idea, however. Speaking of entities Too Big To Fail, perhaps the gravest threat we face now is the federal government’s further collectivizing of risk, and unconstrained assumption of authority over virtually all commerce. The U.S. government is creating vague but omnipotent programs and unaccountable czars with more scale and scope than any imaginable private entity. Indeed, I’d argue that with respect to the trillions of dollars in funding and entities now launched, America isn’t even governable now.

Better approaches to discipline errant market behavior are to reestablish the market’s discipliary forces that government itself, in some instances, has neutralized. Hostile corporate takeovers definitely should return to the world stage; indeed, removing all barriers to the private “Market for Corporate Control” and “right to manage” a corporation are definitely the way to go, rather than antitrust.
No coercive limits on firm size (or CEO pay, for that matter–a silly side-debate on which precious energy is now being wasted) are needed in properly functioning capital markets.

No firm is “larger” than the rivals, upstream suppliers, downstream purchasers, partners, customers, advertisers, future competitors, media watchdogs, trade press, local-national-and-global capital markets arrayed against it if it mis-behaves. Government intervention or “safeguarding” can tend to remove those disciplinary elements, or worse, to collectivize risk artificially far beyond what a free market would permit (thus generating an entity “Too Big to Fail”). We’ve already had a century of central banking and government control of money and credit supply with the TBTF Fed, and more recently, with Fannie and Freddie. The risk now is that the “rescuers” will future centralize risk, kicking decisionmaking upstairs to the Federal government itself, as if it were a commercial credit entity rather than a force-bearing, wealth-transferring institution. That seemed to be the tenor of the Obama press conference today.

Back at ground-level and on a much smaller scale, in frontier industries like cybersecurity and nanotech, government funding and intervention are already removing much of the market disciplinary measures that would otherwise “regulate” risk. So future crises are in the works there too.

Markets and capitalism disperse risk; our failure has been to have too little capitalism and free enterprise, not too much. Unfortunately that lesson isn’t being learned, and the ability to reinvigorate the disciplinary institutions of capitalism diminish by the day as governments assume greater control and powers that will be difficult, if not impossible, to wrest from them.

Given the vast scope of the Federal government now, any conceivable agenda from any president barely scratches the surface of the thorough unshackling of American enterprise that needs to be done.

Below is the outline for our previous edition of our Agenda for Congress (This Liberal Congress Went to Market? A Bi-Partisan Agenda for Congress)

Just about all of it’s still more than relevant, since economic liberalization hasn’t exactly been a concern of Washington lately–yet no task is more important given not just the Bailout to Nowhere, but a Bailout on Wheels besides. Enjoy, and watch this space–and our home page–for the new edition, coming soon.

This Liberal Congress Went to Market?
Securing the Economy, Protecting the Environment, Improving Health and Safety

Securing the Economy

Rein in the $1 Trillion Regulatory State
Reform U.S. Agriculture Programs
Roll Back Overly Aggressive Sarbanes-Oxley Accounting Rules
Make Stock Options Available to More Workers
Recognize the Value of Hedge Funds and Private Equity for Entrepreneurs and Shareholders
Encourage Innovation in Credit Availability
Facilitate Further Telecommunications Reform
Improve Access to Affordable Energy
Allow American Workers to Work Without Labor Regulation
Avoid Extension of Antitrust Regulation into New Competitive Realms
Avoid Privacy Regulation that Worsens Personal Security
Forge a Bipartisan Alliance Against Corporate Welfare
Liberalize Insurance Markets
Keep Government’s Hands off the Net and E-Commerce
Clarify the Role of Not-So-Intellectual Property in the Economy
Define Corporate Social Responsibility
Protect and Enhance Federalism
Protect Free Speech by Rejecting Content Regulation
Promote Globalization’s Benefits by Further Liberalizing Trade
Counteract Politicization of Federal Science Policy
Resist New Burdens on the Transportation Sector
Facilitate Electricity Competition

Protecting the Environment

Restore the Constitutional Right to Property
Embrace Private Conservation of Land and Natural Resources
Protect Endangered Species
Clarify the Role of Invasive Species
Develop New Approaches to Preserve Ocean Resources
Recognize the Risks of Global Warming Policies
Trash Counterproductive Waste Disposal Policies
Recognize the Elitist Nature of “Anti-Sprawl” Measures
Resist the Urge to Play the Fuel Economy Mandate Game
Rethink Water Rights Policies
Reform Wetlands Policies

Improving Health and Safety

Reject the Precautionary Principle, a Threat to Scientific Progress
Recognize the Deadly Effects of Overregulating Medicines and Medical Devices
Purify Federal Water Policies
Enhance Auto Safety
Improve Food Safety and Labeling
Securing the Future of Food Biotechnology
Resist Over-Caution on Nanotechnology and Other Frontier Sciences
Enhance the Homeland Security Role of Critical Infrastructure and Cybersecurity