Google gets my data, I get search and email and that. Help help, I'm being REPRESSED!

Rid me of this moaning hippy!

Worstall on Wednesday When munching that third slice of toast and marmalade I allow myself on a Sunday morning (diet is so important to us middle-aged types) I find that John Naughton's piece on personal data leads me to spluttering Seville's finest all over the kittens as they angle for the remains of the fry-up.

He opens with this phrase:

“Whenever regulators gather to discuss market failures...”

The subject under discussion is the ownership of data and EULAs and all that stuff that so excites a certain sort of techno-pessimist. And that's what leads to the spraying: the assumption being made that people who are trading something they don't value much for something they value more is a market failure.

To an economist this is what markets do: people don't seem to value that data, that information, about who they are, where they are or what they do - or not very much. They certainly don't seem to value it as much as the things they get by allowing access to it: the Facebooks, Googles and so on of this world.

That's not the usual definition of a market failure, that's the efficient working of a market. The data, the thing being valued, is moving from a place where it isn't highly valued to one where it is more valued. Moving something from a lower valued use to a higher is the very definition of wealth creation.

There really is no difference here between Adam Smith's (or David Ricardo's) definition of trade and what is happening to this data. A voluntary transaction is, by definition, mutually beneficial.

If I swap my apples for your pears then I must value those pears more than I do the apples. You similarly in reverse: the transaction, being voluntary, can only take place if we both value what we're getting more highly than we do what we're giving up. This can be true of taxes for government and data for a search engine. If the price is too high, above the value we place upon what is on offer, then we won't do it.

We'll cheat or lie about our taxes or leave the country; not use the search engine that demands to know that we like searching for phrases like “Jaron Lanier is pants”.

Regulators might think that we shouldn't do things that regulators think we shouldn't do – naturally regulators insist upon the importance of there being regulators. Trade in various things in various situations is often subject to controls or completely illegal even when voluntary. But what this is NOT is a market failure in any reasonable (or even unreasonable) sense of the phrase.

There really are market failures out there, as I repeatedly point out: so are there places where markets are not complete or where they are sadly entirely absent. But that a market does what a market does - allows people to trade things of subjectively different value to mutual benefit - simply isn't a failure.

Which brings us to Jaron Lanier:

In his book, Who Owns the Future?, Lanier argued that by convincing users to give away valuable information about themselves in exchange for “free” services, firms such as Google and Facebook have accumulated colossal amounts of data (and corresponding amounts of wealth) at virtually no cost. His proposed solution is to make online transactions bidirectional, to ensure that the economic value of personal data can be realised by individuals, who at the moment just give it away.

I'm sure that Lanier knows more about coding than I do, but as economics this is simply drivel. Firstly, that no cost part. I'm pretty sure actually that there's some cost connected to the collection of that data, and the provision of the "free" services. I'll not bore on and on by going and looking up the accounts but I really am certain that both Google and Facebook do spend considerable amounts on servers, code, coders, buildings and all the rest of it. And if it really is the data that provides all of the value then all of those costs should be seen as being the costs of collecting the data. They're spending billions on all of this. And I realise that Silicon Valley is a world of its own but I just can't let someone call billions of dollars in cold hard cash “virtually no cost”.

Further, we can also work out what is the value of that data. That's the profit that they make on having collected it (assuming, again, that it's the data itself which is the economic value at the heart of it all). Yes, they make decent piles of cash. Super profits, well above average returns on capital.

Aha! So, the capitalist bastards really are shafting us all then! Except, except, well, no, they're not. Because it comes back down again to what is the value to us of the services that we get in return for that data? That Facebook is worth close to nothing to many of us (past articles notwithstanding) is obvious, but Google's got some worth to me at least. And we can even work out that profit that Google is making from me too. Leave the real numbers aside for a moment and say it makes $10 a year from me - profit, after whatever it cost them to provide the searches and other things I got from them.

The capitalist bastards! They're ripping me off of that $10, that's Lanier's assertion. But what is the value to me of that trade? My information or data for access to the Google search engine... Hmmm.

I think I get more than $10 a year out of that. So I am in fact enjoying more of the economic value being created by the system than Google is. And thus this assertion that I'm being ripped off, that Google must compensate me, is ludicrous. I'm already winning.

The confusion here, the basic mistake that Lanier is making and that Naughton is endorsing is to believe that economic value is the cash. And it just ain't. If, for some unknown reason, I desire to have Facebitch and I get Facebitch then I have satisfied one of my desires. However loopy that desire is, I am thus richer. I have gained economic value from that part of the transaction. And if what I have to give up, that information, is worth less to me than what I receive, then I am richer by the trade.

What really annoys here is that the hippies like Lanier have been telling us for decades that it's not all about the money, it's about being human, what humans want and desire. So, when they analyse (to be polite about what they're doing) the tech industry, why the bloody hell do they insist on talking only about the money and not on the satisfaction of human sodding wants and desires? ®

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