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Bad guys (and gals) beware: Dustin Volz (National Journal) reports that the “FBI’s Facial-Recognition Technology Has Achieved ‘Full Operational Capability’”

The agency announced two new services Monday that complete the database’s “operational capability.” The first, called Rap Back, allows officials to receive “ongoing status notifications” regarding the reported criminal history of people “in positions of trust, such as schoolteachers.”

And

The other newly deployed service is the Interstate Photo System, a facial-recognition program that will allow law-enforcement agencies, including probation and parole officers, to cross-reference photographic images with criminal databases.

The Privacy Coalition (over 30 groups, including the ACLU and the Electronic Frontier Foundation) is not pleased. In a letter to Attorney General Eric Holder, it observed:

The facial recognition component of NGI [Next Generation Identification System] poses real threats to privacy for all Americans, and could, in the future, allow us to be monitored and tracked in unprecedented ways. NGI will include criminal and non-criminal photos, and the FBI projects that by 2015, the database could include as many as 52 million face images. 4.3 million of those would be taken for non- criminal purposes, such as employer background checks. It appears FBI plans to include these non-criminal images every time a law enforcement agency performs a criminal search of the database.

Fortunately, the Privacy Coalition does not need to be concerned. As Volz reports:

FBI Director James Comey attempted to dispel fears that the use of biometric data for identification purposes amounted to some sort of Orwellian tracking system. Comey testified before Congress that the database would not collect or store photos of everyday people. Its use, he said, is only intended to “find bad guys by matching pictures to mugshots.”

No federal laws limit the use of facial-recognition software, either by the private sector or the government.

As I concluded the other day when discussing asset forfeiture, “NSA collection of data, militarization of police forces, the wide scale practice of “stop and seize”… One does not have to be a cynic to discern a pattern here.” We can now add the fully operational facial recognition technology to the list.

The Oxford Review of Economic Policy has a brand-new special issue on the economics of independence. The entire issue seems to be open-access right now, so check it out. (HT: Doug Irwin)

In Scottish news, polls have turned a bit against independence, and betting markets now price a “Yes” at around 22-24%. I will take another look at how this affected capital markets, and what that implies about the economics of independence, a bit later in the week.

Barack Obama announced his new strategy for ISIL on 9/10:

“So tonight, with a new Iraqi government in place, and following consultation with allies abroad and Congress at home, I can announce that America will lead a broad coalition to roll back this terrorist threat.” –

The coalition partners are important because our efforts

“will not involve American combat troops fighting on foreign soil. The counter-terrorism campaign will be waged through a steady, relentless effort to take out ISIL, wherever they exist, using our air power and our support for partners on the ground. This strategy…is one that we have successfully pursued in Yemen and Somalia for years.”

Leaving aside the reference to Yemen and Somalia, let’s consider the coalition of our “partners on the ground.” On September 11, a number of Arab nations joined to sign an agreement to assist in the campaign against ISIL, that included providing humanitarian aid and “as appropriate, joining in the many aspects of a coordinated military campaign.” The “as appropriate” clause might give one pause. As the New York Times explains:

While Arab nations allied with the United States vowed on Thursday to “do their share” to fight ISIS and issued a joint communiqué supporting a broad strategy, the underlying tone was one of reluctance. The government perhaps most eager to join a coalition against ISIS was that of Syria, which Mr. Obama had already ruled out as a partner for what he described as terrorizing its citizens.

Continue Reading »

Airpower is the simple but wrong/naive answer to complex problems. It just doesn’t work as advertised by the airpower enthusiasts.  If you will the ends, you will the means. So those who want to wade back into Iraq or jump into wherever to “degrade and ultimately destroy ISIL” should be honest and note that ground forces are likely to be necessary unless the local partners are stronger than I think they are.  But Americans so want to believe in Santa Claus… I mean immaculate warfare.  

Michael Salla, Robert O’Harrow Jr, and Steven Rich (The Washington Post) have written an interesting series on asset forfeiture (see the teaser “Civil asset forfeitures more than double under Obama,” by Christopher Ingraham on Wonkblog). The basic presumption of asset forfeiture is simple: you are guilty until proven innocent. If you are the target of “stop and seize,” you bear the burden of proving that your assets were not involved in criminal activity. Even if charges are never filed, you may not get your assets back. And due to the Equitable Sharing Program, state and local authorities have strong financial incentives to take asset forfeiture seriously. What could possibly go wrong?

forfeitures

Continue Reading »

What can we learn from capital markets about the likely consequences of Scottish independence? A trio of recent polls has shown the “Yes” side to have pulled roughly even with “No.” With momentum on their side, it’s not unthinkable at all that “Yes” will pull it out, resulting in the first secession from a Western democracy since Iceland withdrew from Danish union in 1944. Most American commentators, from Paul Krugman to Tyler Cowen, oppose Scottish independence and forecast economic disaster for the new country. Are they right?

Let’s look at the behavior of capital markets in Britain since these polls’ release to find out. First, let’s set the stage by looking at how betting markets price the probability of Scottish independence. Unfortunately, there are no nice InTrade-style charts for implicit probabilities anymore, at least not that I can access from the United States. From oddschecker.com, I am able to pull odds from different exchanges from the beginning and end of each day. Looking at the markets with most liquidity, it looks as if the odds for independence moved from about 19.5% Friday night to about 25% Saturday night, after the release of the YouGov and Panelbase polls (the Panelbase poll suggested “No” might still have a small lead). On Monday morning the odds stood at about 23.3%. After the release of the TNS poll Monday evening (confirming the dead heat), the odds moved in to 26.0%.

Next, let’s look at the behavior of capital markets over this period. Here is how the pound has fared against the euro:

euros per pound

Not much of a correlation. To be sure, the pound fell against the euro when trading opened Monday morning, following the shock weekend poll from Yougov and the somewhat-reassuring poll from Panelbase, but the TNS poll released late Monday night appears to have had zero effect on the pound, even though it did have a small effect on the betting markets.

Now, the pound has fared a little worse against the dollar, because the euro has also dropped against the dollar. This may reflect that traders believe Scottish independence raises the probability of British exit from the EU. But this would not be a direct cost of Scottish independence, and it would ultimately be up to English, Welsh, and Northern Irish voters whether they want to withdraw from the EU.

What about the stock market?

dowftse

I’ve got the Dow in there for comparison (in green). So the FTSE fell about 0.3% on opening Monday, then drifted downward throughout the day, finally recovering all that ground except the initial 0.3% drop. On opening Tuesday after the TNS poll, it actually rose. As of this writing is down just about 0.4% from Friday’s close. This looks like a muted response to me.

But what about Scottish-exposed stocks in particular? I took the list of top 25 Scottish companies here and winnowed the list down to those listed as having Scottish ownership and being publicly traded. Nine companies fit that test. I then constructed a weighted average of their share prices at Friday close, Monday open, Monday close, and Tuesday open, the weights being each stock’s market cap according to investing.com. Recall that there were two surprise polls, one over the weekend and one released Monday evening, the former having the greater effect on betting markets.

The Scottish index I created lost 1.7% of its value on opening Monday morning, a noteworthy drop because it happened right away. It’s plausible to attribute this drop to the increased risk of independence. However, today it lost nothing on opening – in fact, it was up 0.1%. Still, the total loss to these nine firms’ market value amounts to about $800 million. The fact that there was no further response of capital markets to the TNS poll, even though betting markets did respond, weakens our confidence somewhat that investors are responding negatively to the prospect of independence, but let us work with the assumption that they are.

What would happen to these firms’ value if independence were dead certain? Expected utility analysis helps us here. They lost $800 million in value on an increase in the probability of independence of 5.5+2.7=8.2%. We can infer that an increase from 20% to 100% would wipe out $800 million*8/.6=$7.8 billion. That’s a fair proportion of their existing value: about 16%. Of course, investors are risk averse, and the very uncertainty of the outcome might be driving a fair proportion of the losses.

A closer look reveals that different stocks responded differently to the poll news. Two transportation companies, FirstGroup and Stagecoach Group, lost virtually nothing, and Aggreko, which rents temperature control systems, lost absolutely nothing. Financial and energy/power companies were pounded. An engineering company closely linked to the oil industry, the Weir Group, took a more modest 1.0% loss.

How to sum up? So far Continue Reading »

President Obama’s comments at a press conference in Estonia has attracted quite a bit of heat. The President stated:

“we know that if we are joined by the international community, we can continue to shrink ISIL’s sphere of influence, its effectiveness, its financing, its military capabilities to the point where it is a manageable problem.”

As one talking head proclaimed:

“The president needs to have the same type of resolve that I think we as individuals have when we see and read the truth about what the Islamic State desires, which is a world way beyond Iraq and Syria, and it must be destroyed, each and every one of them needs to be killed and stopped.”

The critique, predictably, has a certain Manichaean feel: ISIL is evil and evil must be destroyed. And with that, the drums of war beat once again.

I have little doubt that ISIL is evil (and yes, I believe in evil) and that some (perhaps all) members of ISIL would be pleased to kill US citizens (the recent beheading videos leave little doubt). But when something is cast as evil and we commit to doing whatever is necessary to destroy it, we run into some obvious problems. Even if evil can be personified in “Jihadi John,” (the nickname given to the ISIL executioner, veiled in black, with a British accent), it cannot be reduced to a single person or a collection of people who can be killed (“each and every one”). Here, I think Hannah Arendt was closer to the truth when she used a different metaphor: “Evil …can overgrow and lay waste the whole world precisely because it spreads like a fungus on the surface.” Given the pervasiveness of evil, a war on evil could prove open ended (kind of like a war on drugs, a war on crime, a war on terror…). Such wars are used repeatedly to expand the role of the state, justify assaults on liberty, and turn a blind eye to the substantial collateral damage.

In this context, the prudent person needs to evaluate the magnitude of the threat and then conduct something of a cost-benefit analysis. What is the most cost-effective means of reducing the capacity of those intent on evil from constituting a serious threat? How can we transform a given threat into “a manageable problem”? Perhaps this analysis will reveal that we don’t need to “follow them to the gates of hell until they are brought to justice,” as Vice President Biden declared Wednesday in New Hampshire?

There are a lot of evil people in the world. Some we kill. Some we incarcerate. Some we incapacitate. Some we rehabilitate. Some we bribe. Some we ignore. Often we pragmatically try a combination of strategies and the combination evolves over time as our understanding grows or circumstances change. Unfortunately, this is an analysis that is particularly difficult to conduct two months before the midterm elections, when a lot of unserious people and neocons are competing for face time in the media.

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