net.wars

There are plenty of readily available reasons why everything is suddenly so much more expensive: pandemic-blighted supply chains, staff shortages, rising energy prices that push everything else up, the war in Ukraine, monopolistic consolidation that has created a "profits-inflation spiral", per Matt Stoller, and, in the UK, Brexit. But there's another factor also at work: the rising cost of capital.

Throughout the last 15 years of low interest rates, venture capitalists have, by pouring funding into money-losing technology-adjacent companies, been funding what some have called the "millennial lifestyle". I doubt it's limited to millennials; people of all ages have taken advantage of what has been an era of predatory loss-leading pricing intended to undercut the competition until it goes away and they can raise prices.

Amazon did not invent this tactic, but it may have been the first web company to really exploit it. It lost money the first five years it was a public company, and again at other times in its history. Cheap prices were an important part of getting people to use the site; Bezos famously chose its Seattle location to avoid sales taxes on the books it began with. As long ago as 2014, however, people had begun warning that it was now often the more expensive option. And, these days, its search results are full of clutter, ads, "sponsored products", and weird brand names.

I began using Amazon so early in its history that I have an insulated mug the company sent its customers one mid-1990s Christmas. These days, I sometimes go for months at a time without using it.

It's not easy because, as "honest broker" Ted Gioia points out, the long tail Chris Anderson touted in 2004, first in a Wired article and then in a book, doesn't really work. Instead of niche products dominating the market, we continue to have blockbusters and what Gioia calls the "short tail". Companies like Netflix and Amazon, who made their names selling the widest possible range, have since narrowed their offerings. (As Gioia deoesn't say, in its early days Amazon didn't actually have warehouses full of every possible book title; it let the distributor Ingram do that, and sent runners over to collect copies of obscure titles when they were ordered. Now, the long tail is often handled by third-party merchants in its Marketplace.)

As Gioia concludes, the 80/20 rule won and kept winning - which also means that 20 percent of online retailers do 80 percent of the business, and occupy 80 percent of the search listings, and that 20 percent becomes harder and harder to find.

But back to the "millennial lifestyle". "If you wake up on a Casper mattress, work out with a Peloton before breakfast, Uber to your desk at a WeWork, order DoorDash for lunch, take a Lyft home, and get dinner through Postmates, you've interacted with seven companies that will collectively lose nearly $14 billion this year," Derek Thompson wrote at The Atlantic in 2019 just after the WeWork crash. Thompson went on to predict that WeWork's example was going to make venture capitalists much less willing to finance all that free living in future.

Last week, he published an update, noting that while the combination of spiking energy and labor costs is getting all the headlines, rising prices among the "millennial lifestyle" companies are also part of why life feels so much more expensive for urbanites. Tl;dr: those companies can't afford the subsidy any longer. Rising interest rates surely play a part, too, particularly for a company like Netflix, which used easy access to cheap money to acquire substantial debt with which to finance building its own content library. It didn't have much choice, since it was inevitable that eventually content producers like Disney and the legacy broadcast networks would want to reserve their content for their own streaming services. Now, however, with subscriber numbers under pressure from cost-of-living decisions, its prices are going up and it's adding an advertising-supported tier.

At the New York Times, Kevin Roose reports the same experience as Thompson: "For years, these subsidies allowed us to live Balenciaga lifestyles on Banana Republic budgets." Today...well, less $16 for an Uber ride across greater Los Angeles, more $250 to get from midtown Manhattan to JFK airport. (Pro tip: there's an express bus from just outside Grand Central station that runs every 30 minutes and gets you there in under an hour for $19.)

The startup extravagance Roose describes - his used car was delivered by a white-gloved valet and adorned with a giant bow - is utterly 1999, when startups recklessly burned through their all-too-easily-raised capital by installing in-office chefs and TGIF bartenders. We know what happened to that: market collapse, followed by more sensible burn rates. WeWork provided a similar, but much crazier, cautionary tale, which Stoller dubbed- counterfeit capitalism.

This approach was never going to be sustainable. So now these services - Stoller lists Bird, Lyft, and Uber (which transport industry expert Hubert Horan notes has lost $31 billion over its lifetime) - are being forced to adopt realistic pricing. In the long run, hopefully it will improve competition and be better for the workers in those industries. For right now, though, it's going to hurt.

Illustrations:

Wendy M. Grossman is the 2013 winner of the Enigma Award. Her Web site has an extensive archive of her books, articles, and music, and an archive of earlier columns in this series. Stories about the border wars between cyberspace and real life are posted occasionally during the week at the net.wars Pinboard - or follow on Twitter.

Posted by Wendy M. Grossman at 10:37 AM | Permalink | Comments (0) | TrackBacks (0)

It's interesting to speculate about whether our collective approach to cybersecurity would be different if the dominant technologies hadn't been developed under the control of US companies. I'm thinking about the coronavirus, which I fear is about to expose every bit of the class, race, and economic inequality of the US in the most catastrophic way.

Here in Britain, the question I'm most commonly asked has become, "Why do Americans oppose universal health care?" This question is particularly relevant as the Democratic primaries bed down into daily headlines and pundits opining on whether "democratic socialist" Bernie Sanders and Elizabeth Warren, who both favor "Medicare for All", are electable. How, UK friends ask, could they not be electable when what they're proposing is so obviously a good thing? How is calling health care a human right "socialist" rather than just "sane"? By that standard, Europe is full of socialist countries that are functioning democracies.

I respond that framing health insurance as an aspirational benefit of a "good job" was a stroke of evil genius that invoked everyone's worst meritocratic instincts while putting employers firmly in the feudal lord driving seat. I find it harder to explain how "socialist" became equated with "evil". "Socialized medicine" apparently began as a harmless description but in the 1960s the American Medical Association exploited it to scare people off. I thought doctors were supposed to first, do no harm?

Of course, a virus doesn't care who's paying for health care - the real crux of the debates - but it also doesn't care if you're rich, poor, upper crust, working class, Republic, Democrat, or a narcissist who thinks expertise is vastly overrated and scientists are just egos with degrees. The consequence of treating health care as an aspirational benefit instead of a human right is that in 2018 27.5 million Americans had no health insurance. As others have noticed, uninsured people cluster in "red" states. Since Donald Trump took office, however, the number of uninsured is slowly regrowing.

Some of the uninsured are undoubtedly people who are homeless, but most are from working families. They work in gas stations and convenience stores, as agency maids and security guards, as Uber drivers, and...in food service. Skeleton staffing levels mean bosses penalize anyone trying to call in sick; low wage levels make sick days an unaffordable "luxury"; without available child care, kids must go to school, sick or well. Every misplaced incentive forces this group to soldier on and to avoid doctors as much as possible. The story of Ozmel Martinez Azcue, who did the socially responsible thing and got himself to a hospital for testing only to be billed for $3,270 (of which his share is $1,400) when he tested negative for coronavirus, is a horror story deterrent. As Carl Gibson writes at the Guardian, "...when you combine a for-profit healthcare system - in which only those wealthy enough to get care actually receive it - with a global pandemic, the only outcome will be unmitigated disaster".

This is a country where 40% of the population can't come up with an emergency $400, for whom no vaccine or test is "affordable". CDC's sensible advice is out of reach for the nearly 10% of the population whose work requires their physical presence; a divide throroughly exposed by 2012's Hurricane Sandy.

Sanity would dictate making testing, treatment, and vaccines completely free for the duration of the crisis in the interests of collective public health. But even that would require a profound shift in how Americans understand health care. It requires Americans to loosen their sense that health insurance is an individual merit badge and exercise a modest amount of trust in government - at a time when the man in charge is generally agreed to be entirely untrustworthy. As Laurie Garrett, the author of 1994's Pulitzer Prize-winning The Coming Plague, warned last month, two years ago Trump trashed the pandemic response teams Barack Obama put in place in 2014, after H1N1 and Ebola made the necessity for them clear.

If the US survives this intact, Trump will take the credit, but the reality will be that the country got lucky this time. Individuals won't, however; a pandemic in these conditions will soon be followed by a wave of bankruptcies, many directly or indirectly a consequence of medical bills - and a lot of them will have had health insurance. Plus, there will be the longer-term, hard-to-quantify damage of the spreading climate of fear, sowing distrust in a society that already has too much of it.

So back to cybersecurity and privacy. The same type of individualistic thinking underlies computer and networking designers who take the view that securing them is the individual problem of each entity that uses them. Individual companies have certainly improved on usability in some cases, but even the discovery of widespread disinformation campaigns has not really led to a public health-style collective response even though pervasive interconnection means the smallest user and device can be the vector for infecting a whole network. In security, as in health care, information asymmetry is such that the most "virtuous patient" struggles to make good choices. If a different country had dominated modern computing, would we, as Americans tend to think, have less, or no, innovation? Or would we have much more resilient systems?

Illustrations: The map of uninsured Americans in 2018, from the US Census Bureau.

Wendy M. Grossman is the 2013 winner of the Enigma Award. Her Web site has an extensive archive of her books, articles, and music, and an archive of earlier columns in this series. Stories about the border wars between cyberspace and real life are posted occasionally during the week at the net.wars Pinboard - or follow on Twitter.

Posted by Wendy M. Grossman at 12:46 PM | Permalink | Comments (0) | TrackBacks (0)

With no ado, here's the money quote:

The [US Trade Representative] team is keen to move into the formal phase of negotiations. Ahead of the publication of UK negotiating objectives, there now little that we will be able to achieve in further pre-negotiation engagement. USTR officials noted continued pressure from their political leadership to pursue an FTA [free trade agreement] and a desire to be fully prepared for the launch of negotiations after the end of October. They envisage a high cadence negotiation - with rounds every 6 weeks - but it was interesting that my opposite number thought that there would remain a political and resource commitment to a UK negotiation even if it were thought that the chances of completing negotiations in a Trump first term were low. He felt that being able to point to advanced negotiations with the UK was viewed as having political advantages for the President going in to the 2020 elections. USTR were also clear that the UK-EU situation would be determinative: there would be all to play for in a No Deal situation but UK commitment to the Customs Union and Single Market would make a UK-U.S. FTA a non-starter.

This quote appears on page two of one of the six leaked reports that UK Labour leader Jeremy Corbyn flourished at a press conference this week. The reports summarize the US-UK Trade and Investment Working Group's efforts to negotiate a free trade agreement between the US and post-Brexit Britain (if and when). The quote dates to mid-July 2019; to recap, Boris Johnson became prime minister on July 24 swearing the UK would exit the EU on October 31.

Three key points jump out:

- Donald Trump thinks a deal with Britain will help him win re-election next year. This is not a selling point to most people in Britain.

- The US negotiators condition the agreement on a no-deal Brexit - the most damaging option for the UK and European economies. Despite the last Parliament's efforts, this could still happen because two cliff edges still loom: the revised January 31 exit date, and December 2020, when the transition period is due to end (and which Johnson swears he won't extend). Whose interests is Johnson prioritizing here?

- Wednesday's YouGov model poll predicts that Johnson will win a "comfortable" majority, suggesting that the cliff edge remains a serious threat.

At Open Democracy, Nick Dearden sums up the worst damage. Among other things, it shows the revival of some of the most-disliked provisions in the abandoned Transatlantic Trade Investment Partnership treaty, most notably investor-state dispute resolution (ISDS), which grants corporations the right to sue governments that pass laws they oppose in secret tribunals. As Dearden writes, these documents make clear that "taking back control" means "giving the US control". The Trade Justice Movement's predictions from earlier this year seem accurate enough.

On Twitter, UKTrade Forum co-founder David Henig has posted a thread explaining why adopting a US-first trade policy will be disastrous for British farmers and manufacturers.

Global Justice's analysis highlights both the power imbalance, and the US's demands for free rein. It's also clear that Johnson can say the NHS is not on the table, Trump can say the opposite, and both can be telling some value of truth, because the focus is on pharmaceutical pricing and patent extension. An unscrupulous government filled with short-term profiteers might figure that they'll be gone by the time the costs become clear.

For net.wars, this is all background and outside our area of expertise. The picture is equally alarming for digital rights. In 1999, Simon Davies predicted that data protection would become a trade war between the US and EU. Even a partial reading of these documents suggests that now, 20 years on, may be the moment. Data protection is a hinge, in that you might, at some expense, manage varying food standards for different trading regions, but data regimes want to be unitary. The UK can either align with the EU, GDPR, which enshrines privacy and data protection as human rights, or with the US and its technology giants. This goes double if Max Schrems, whose legal action brought down the Safe Harbor agreement, wins his NOYB case against Privacy Shield. Choose the EU and GDPR, and the US likely walks, as the February 2019 summary of negotiation objectives (PDF) makes plain. That document also is clear that the US wants to bar the UK from mandating local data storage, restricting cross-border data flows, imposing customs duties on digital products, requiring the disclosure of computer code or algorithms, and holding online platforms liable for third-party content. Many of these are opposite to the EU's general direction of travel.

The other hinge issue is the absolute US ban on mentioning climate change. The EU just declared a climate emergency and set out an action list.

The UK cannot hope to play both sides. It's hard to overstress how much worse a position these negotiations seem to offer the UK, which *is* a full EU partner, but which will always be viewed by the US as a lesser entity.

Illustrations: A large bird attacking a stag (Hendrik Hondius, 1610; from LA County Museum of Art, via Wikimedia.

Wendy M. Grossman is the 2013 winner of the Enigma Award. Her Web site has an extensive archive of her books, articles, and music, and an archive of earlier columns in this series. Stories about the border wars between cyberspace and real life are posted occasionally during the week at the net.wars Pinboard - or follow on Twitter.

Posted by Wendy M. Grossman at 11:51 AM | Permalink | Comments (0) | TrackBacks (0)

One of my favorite moments in the 1996 sitcom 3rd Rock from the Sun was when Dick (John Lithgow), the high commander of the aliens' mission to Earth, marveled at humans' ability to live every day as though they didn't know they were going to die. For everyone but Woody Allen and the terminally ill, that denial is useful: it allows us to get up every day and do things like watch silly sitcoms without being overwhelmed by the sense of doom.

In other contexts, the denial of existential limits is less helpful: being aware of the limits of capital reminds to use it wisely. During those 3rd Rock years, I was baffled by the recklessly rapid adoption of the Internet for serious stuff - banking, hospital systems - apparently without recognizing that the Internet was still a somewhat experimental network and lacked the service level agreements and robust engineering provided by the legacy telephone networks. During Silicon Valley's 2007 to 2009 bout of climate change concern it was an exercise in cognitive dissent to watch CEOs explain the green values they were imposing on themselves and their families while simultaneously touting their companies' products and services, which required greater dependence on electronics, power grids, and always-on connections. At an event on nanotechnology in medicine, it was striking that the presenting researchers never mentioned power use. The mounting consciousness of the climate crisis has proceeded in a separate silo from the one in which the "there's an app for that" industries have gone on designing a lifestyle of total technological dependence, apparently on the basis that electrical power is a constant and the Internet is never interrupted. (Tell that to my broadband during those missing six hours last Thursday.)

The last few weeks of California have shown that we need to completely rethink this dependence. At The Verge, Nicole Westman examines the fragility of American hospital systems. Many do have generators, but few have thought-out plans for managing during a black-out. As she writes, hospitals may be overwhelmed by unexpected influxes of patients from nursing homes that never mentioned the hospital was their fallback plan and local residents searching for somewhere to charge their phones. And, Westman notes, electronic patient records bring hard choices: do you spend your limited amount of power on keeping the medicines cold, or do you keep the computer system running?

Right now, with paper records still so recent, staff may be able to dust off their old habits and revert, but ten years hence that won't be true. British Airways' 2018 holiday weekend IT collapse at Heathrow provides a great example of what happens when there is (apparently) no plan and less experience.

At the Atlantic, Alexis Madrigal warns that California's blackouts and wildfires are samples of our future; the toxic "technical debt" of accumulated underinvestment in American infrastructure is being exposed by the abruptly increased weight of climate change. How does it happen that the fifth largest economy in the world has millions of people with no electric power? The answer, Madrigal (and others) writes is the diversion of capital that should have been spent improving the grid and burying power lines to shareholders' dividends. Add higher temperatures, less rainfall, and exceptional drought, and here's your choice: power outages or fires?

Someone like me, with a relatively simple life, a lot of paper records, sufficient resources, and a support network of friends and shopkeepers, can manage. Someone on a zero-hours contract, whose life and work depend on their phone, who can't cook, and doesn't know how to navigate the world of people if they can't check the website to find out why the water is out...can't. In these crises we always hear about the sick and the elderly, but I also worry about the 20-somethings whose lives are predicated on the Internet always being there because it always has been.

A forgotten aspect is the loss of social infrastructure, as Aditya Chakrabortty writes in the Guardian. Everyone notes that since online retail has bitten great chunks off Britain's high streets, stores have closed and hub businesses like banks have departed. Chakrabortty points out that this is only half of the depredation in those towns: the last ten years of Conservative austerity have sliced away social support systems such as youth clubs and libraries. Those social systems are the caulk that gives resilience in times of stress, and they are vanishing.

Both pieces ought to be taken as a serious warning about the many kinds of capital we are burning through, especially when read in conjunction with Derek Thompson's contention that the "millennial lifestyle" is ending. "If you wake up on a Casper mattress, work out with a Peloton before breakfast, Uber to your desk at a WeWork, order DoorDash for lunch, take a Lyft home, and get dinner through Postmates, you've interacted with seven companies that will collectively lose nearly $14 billion this year," he observes. He could have added Netflix, whose 2019 burn rate is $3 billion. And, he continues, WeWork's travails are making venture capitalists and bond markets remember that losing money, long-term, is not a good bet, particularly when interest rates start to rise.

So: climate crisis, brittle systems, and unsustainable lifestyles. We are burning through every kind of capital at pace.

Illustrations: California wildfire, 2008.

Wendy M. Grossman is the 2013 winner of the Enigma Award. Her Web site has an extensive archive of her books, articles, and music, and an archive of earlier columns in this series. Stories about the border wars between cyberspace and real life are posted occasionally during the week at the net.wars Pinboard - or follow on Twitter.

Posted by Wendy M. Grossman at 3:07 PM | Permalink | TrackBacks (0)