Archives For jack calfee

The Children’s Online Privacy Protection Act (COPPA) continues to be a hot button issue for many online businesses and privacy advocates. On November 14, Senator Markey, along with Senator Kirk and Representatives Barton and Rush introduced the Do Not Track Kids Act of 2013 to amend the statute to include children from 13-15 and add new requirements, like an eraser button. The current COPPA Rule, since the FTC’s recent update went into effect this past summer, requires parental consent before businesses can collect information about children online, including relatively de-identified information like IP addresses and device numbers that allow for targeted advertising.

Often, the debate about COPPA is framed in a way that makes it very difficult to discuss as a policy matter. With the stated purpose of “enhanc[ing] parental involvement in children’s online activities in order to protect children’s privacy,” who can really object? While there is recognition that there are substantial costs to COPPA compliance (including foregone innovation and investment in children’s media), it’s generally taken for granted by all that the Rule is necessary to protect children online. But it has never been clear what COPPA is supposed to help us protect our children from.

Then-Representative Markey’s original speech suggested one possible answer in “protect[ing] children’s safety when they visit and post information on public chat rooms and message boards.” If COPPA is to be understood in this light, the newest COPPA revision from the FTC and the proposed Do Not Track Kids Act of 2013 largely miss the mark. It seems unlikely that proponents worry about children or teens posting their IP address or device numbers online, allowing online predators to look at this information and track them down. Rather, the clear goal animating the updates to COPPA is to “protect” children from online behavioral advertising. Here’s now-Senator Markey’s press statement:

“The speed with which Facebook is pushing teens to share their sensitive, personal information widely and publicly online must spur Congress to act commensurately to put strong privacy protections on the books for teens and parents,” said Senator Markey. “Now is the time to pass the bipartisan Do Not Track Kids Act so that children and teens don’t have their information collected and sold to the highest bidder. Corporations like Facebook should not be profiting from the personal and sensitive information of children and teens, and parents and teens should have the right to control their personal information online.”

The concern about online behavioral advertising could probably be understood in at least three ways, but each of them is flawed.

  1. Creepiness. Some people believe there is something just “creepy” about companies collecting data on consumers, especially when it comes to children and teens. While nearly everyone would agree that surreptitiously collecting data like email addresses or physical addresses without consent is wrong, many would probably prefer to trade data like IP addresses and device numbers for free content (as nearly everyone does every day on the Internet). It is also unclear that COPPA is the answer to this type of problem, even if it could be defined. As Adam Thierer has pointed out, parents are in a much better position than government regulators or even companies to protect their children from privacy practices they don’t like.
  2. Exploitation. Another way to understand the concern is that companies are exploiting consumers by making money off their data without consumers getting any value. But this fundamentally ignores the multi-sided market at play here. Users trade information for a free service, whether it be Facebook, Google, or Twitter. These services then monetize that information by creating profiles and selling that to advertisers. Advertisers then place ads based on that information with the hopes of increasing sales. In the end, though, companies make money only when consumers buy their products. Free content funded by such advertising is likely a win-win-win for everyone involved.
  3. False Consciousness. A third way to understand the concern over behavioral advertising is that corporations can convince consumers to buy things they don’t need or really want through advertising. Much of this is driven by what Jack Calfee called The Fear of Persuasion: many people don’t understand the beneficial effects of advertising in increasing the information available to consumers and, as a result, misdiagnose the role of advertising. Even accepting this false consciousness theory, the difficulty for COPPA is that no one has ever explained why advertising is a harm to children or teens. If anything, online behavioral advertising is less of a harm to teens and children than adults for one simple reason: Children and teens can’t (usually) buy anything! Kids and teens need their parents’ credit cards in order to buy stuff online. This means that parental involvement is already necessary, and has little need of further empowerment by government regulation.

COPPA may have benefits in preserving children’s safety — as Markey once put it — beyond what underlying laws, industry self-regulation and parental involvement can offer. But as we work to update the law, we shouldn’t allow the Rule to be a solution in search of a problem. It is incumbent upon Markey and other supporters of the latest amendment to demonstrate that the amendment will serve to actually protect kids from something they need protecting from. Absent that, the costs very likely outweigh the benefits.

My good friend and coauthor John E. (Jack) Calfee died suddenly of a heart attack last month. He was bon in 1941 and was 69 years old.

Jack came late to economics. After graduating from Rice with a major in mathematics, he studied international relations at the University of Chicago and then worked for AT&T in California. It was only in 1980 that he received his Ph.D. in Economics from Berkeley. He then went to work at the FTC (where I met him), mostly as Special Adviser to Wendy Gramm when she was Head of the Bureau of Economics. The issues he studied there – advertising, markets for health, including pharmaceuticals, tort law – were the basis for the rest of his career. From the FTC, Jack went to the University of Maryland (my daughter was his student) and then to Boston University, where he taught marketing. He returned to Washington in 1993 and worked for a year at the Brookings Institution, and then at the American Enterprise Institute, where he remained until his death.

Jack’s work had both scholarly and policy impacts. Google Scholar lists about 150 papers with about 2000 citations, a very respectable number for anyone, and especially for someone who was not primarily an academic. But Jack’s work had important policy implications. In addition to his scholarly work Jack wrote innumerable policy papers and articles, and testified both before Congress and before regulatory agencies. Many of his policy articles appeared in AEI publications, but there were also op-eds in the many newspapers and magazines. Indeed, Jack’s final publication, an analysis of the costs of the Massachusetts health plan appeared posthumously in the Wall Street Journal, one of many publications in that newspaper.

Jack contributed to our understanding of several areas of knowledge. His 1997 book, Fear of Persuasion is the best exposition of the way advertising works of which I am aware. In this book and numerous articles, Jack illustrated the benefits to consumers of advertising and showed the dangers of regulation. For a well known example, in a paper in Regulation magazine he showed that the cigarette companies advertised tar and nicotine levels and reduced these levels voluntarily until the FTC made them stop. In this as in other areas his knowledge and understanding of advertising blended with his understanding of health care and pharmaceutical markets to show how advertisers are forced by market forces to provide benefits, and he also showed that regulators generally do not understand these benefits and so often harm consumers by reducing the amount of information advertisers are allowed to provide. His research also provided insights about tort law, about patents, and about the sources of new medicines. The overarching theme of his research is that Adam Smith’s “invisible hand” works not only through prices, but also through information and through other subtle and non-obvious benefits of free markets.

More recently, Jack’s work was increasing in importance. He has been one of the leading voices pointing out the costs and harms of Obamacare. Moreover, as a pro-regulatory administration has put in more active regulators at agencies like the FDA and the FTC, Jack’s deep expertise in understanding the costs of these regulations and the indirect effects of interfering with both product and information markets has been extremely valuable.

Those of us who knew him personally mourn his untimely death. I would see Jack and his lovely wife Brenda for dinner when I was in Washington and will sadly miss these meetings. But everyone in America will be harmed because we have lost a wise and knowledgeable defender of the benefits of markets when they are under sustained attack.