Tag: Economics

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Critically Assessing AI Technologies’ Economic Potentials

This article by Ramani and Wang, entitled “Why transformative AI is really, really hard to achieve,” is probably the best critical economic analysis of the current AI debates I’ve come across. It assesses what would be required for AI technologies to live up to the current hype cycles about how these technologies will massively benefit economic productivity. Based on the nature of AI technologies being developed, combined with the history of economic productivity enhancements over time, the authors conclude that the present day hype is unlikely to be met.

Key to the arguments is that AI technologies do not, as of yet, sufficiently automate a vast set of tasks which are comparatively easy for humans to accomplish, nor are they able to benefit from the latent knowledge and intelligence that guides humans in their daily lives. The authors argue that AI technologies must broadly automate tasks, instead of discretely automating them, in order to achieve cross-industry improvements to productivity. Doing otherwise will merely accelerate aspects of processes which will remain gridlocked in the aggregate by more traditional or less automated processes.

The authors are not dismissing the potential utility of AI technologies, however, but instead just arguing that they are not as likely to achieve the transformative economic miracles that many are suggesting are just around the corner. However, even if AI systems are ‘only’ as significant for productivity as the combustion engine (which discretely as opposed to comprehensively enhanced productivity) this would be a significant accomplishment.

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Aside Quotations

What to Learn From the Silicon Valley Bank Collapse

Look, if you think the fact that my Internet of Shit door-lock failed because the company that designed it made no plan to let me into my house if they went out of business would make me sympathetic to that company, you are out of your fucking mind.

Cory Doctorow, “Learning from Silicon Valley Bank’s apologists”

The Internet-of-shit is real and we can only hope that the threats associated with their bank collapsing will teach a generalizable lesson.

I’m…..not optimistic.

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Links Writing

Who Benefits from 5G?

The Financial Times (FT) ran a somewhat mixed piece on the future of 5G. The thesis is that telecom operators are anxious to realise the financial benefits of 5G deployments but, at the same time, these benefits were always expected to come in the forthcoming years; there was little, if any, expectation that financial benefits would happen immediately as the next-generation infrastructures were deployed.

The article correctly notes that consumers are skeptical of the benefits of 5G while, also, concluding by correctly stating that 5G was really always about the benefits that 5G Standalone will have for businesses. This is, frankly, a not great piece in terms of editing insofar as it combines two relatively distinct things without doing so in a particularly clear way.

5G Extended relies on existing 4G infrastructures. While there are theoretically faster speeds available to consumers, along with a tripartite spectrum band segmentation that can be used,1 most consumers won’t directly realise the benefits. One group that may, however, benefit (and that was not addressed at all in this piece) are rural customers. Opening up the lower-frequency spectrum blocks will allow 5G signals to travel farther with the benefit significantly accruing to those who cannot receive new copper, coax, or fibre lines. This said, I tend to agree with the article that most of the benefits of 5G haven’t, and won’t, be directly realised by individual mobile subscribers in the near future.2

5G Standalone is really where 5G will theoretically come alive. It’s, also, going to require a whole new way of designing and securing networks. At least as of a year or so ago, China was a global leader here but largely because they had comparatively poor 4G penetration and so had sought to leapfrog to 5G SA.3 This said, American bans on semiconductors to Chinese telecoms vendors, such as Huawei and ZTE, have definitely had a negative effect on the China’s ability to more fully deploy 5G SA.

In the Canadian case we can see investments by our major telecoms into 5G SA applications. Telus, Rogers, and Bell are all pouring money into technology clusters and universities. The goal isn’t to learn how much faster consumers’ phones or tablets can download data (though new algorithms to better manage/route/compress data are always under research) but, instead, to learn how how to take advantage of the more advanced business-to-business features of 5G. That’s where the money is, though the question will remain as to how well telecom carriers will be able to rent seek on those features when they already make money providing bandwidth and services to businesses paying for telecom products.

  1. Not all countries, however, are allocating the third, high-frequency, band on the basis that its utility remains in doubt. ↩︎
  2. Incidentally: it generally just takes a long, long time to deploy networks. 4G still isn’t reliably available across all of Canada, such as in populated rural parts of Canada. This delay meaningfully impedes the ability of farmers, as an example, to adopt smart technologies that would reduce the costs associated with farm and crop management and which could, simultaneously, enable more efficient crop yields. ↩︎
  3. Western telecoms, by comparison, want to extend the life of the capital assets they purchased/deployed around their 4G infrastructures and so prefer to go the 5G Extended route to start their 5G upgrade path. ↩︎
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Economics and Software Bills of Materials (SBOM)

In an article for The Hill, Shannon Lantzy and Kelly Rozumalski have discussed how Software Bill Of Materials (SBOMs) are good for business as well as security. SBOMs more forcefully emerged on the American policy space after the Biden Whitehouse promulgated an Executive Order on cybersecurity on May 12, 2021. The Order included a requirement that developers and private companies providing services to the United States government be required to produce Software Bill of Materials (SBOM).1 SBOMs are meant to help incident responders to cybersecurity events assess what APIs, libraries, or other digital elements might be vulnerable to an identified operation, and also help government procurement agencies better ensure the digital assets in a product or service meet a specified security standard.

Specifically, Lantzy and Rozumalsko write:

Product offerings that are already secure-by-design will be able to command a premium price because consumers will be able to compare SBOMs.

Products with inherently less patchable components will also benefit. A universal SBOM mandate will make it easy to spot vulnerabilities, creating market risk for lagging products; firms will be forced to reengineer the products before getting hacked. While this seems like a new cost to the laggards, it’s really just a transfer of future risk to a current cost of reengineering. The key to a universal mandate is that all laggards will incur this cost at roughly the same time, thereby not losing a competitive edge.

The promise of increased security and reduced risk will not be realized by SBOM mandates alone. Tooling and putting this mandate in practice will be required to realize the full power of the SBOM.

The idea of internalizing security costs to developers, and potentially increasing the cost of goods, has been something that has been discussed publicly and with Western governments for at least two decades or more. We’ve seen the overall risk profiles presented to organizations continue to increase year over year as a result of companies racing to market with little regard for security, which was a business development strategy that made sense when they experienced few economic liabilities for selling products with severe cybersecurity limitations or vulnerabilities. In theory, enabling comparison shopping vis-a-vis SBOMs will disincentivize companies from selling low-grade equipment and services if they want to get into high-profit enterprise or high-reliability government contracts, with the effect being that security improvements will also trickle down to the products purchased by consumers as well (‘trickle down cybersecurity’).

While I think that SBOMs are definitely a part of developing cybersecurity resilience it remains to be seen just how much consumers will pay for ‘more secure’ products given that, first, they are economically incentivized to pay the lowest possible amounts for goods and services and, second, they are unlikely to know for certain what is a good or bad security practice. Advocates of SBOMs often refer to them as akin to nutrition labels but we know that at most about a third of consumers read those labels (and those who read them often experience societal pressures to regulate caloric intake and thus read the labels) and, also, that the labels are often inaccurate.

It will be very interesting to see whether enterprise and consumers alike will be able or willing to pay higher up-front costs, to say nothing of being able to actually trust what is on the SBOM labels. Will companies that adopt SBOM products suffer a lower rate of cybersecurity incidents, or ones that are of reduced seriousness, or be able to respond more quickly when a cybersecurity incident has been realized? We’re going to actually be able to test the promises of SBOMs, soon, and it’s going to be fascinating to see things play out.

  1. I have a published a summary and brief analysis of this Executive Order elsewhere in case you want to read it. ↩︎
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Building a Strategic Vision to Combat Cybercrime

The Financial Times has a good piece examining the how insurance companies are beginning to recalculate how they assess insurance premiums that are used to cover ransomware payments. In addition to raising fees (and, in some cases, deciding whether to drop insuring against ransomware) some insurers like AIG are adopting stronger underwriting, including:

… an additional 25 detailed questions on clients’ security measures. “If [clients] have very, very low controls, then we may not write coverage at all,” Tracie Grella, AIG’s global head of cyber insurance, told the Financial Times.

To be sure, there is an ongoing, and chronic, challenge of getting companies to adopt baseline security postures, inclusive of running moderately up-to-date software, adopting multi-factor authorization, employing encryption at rest, and more. In the Canadian context this is made that much harder because the majority of Canadian businesses are small and mid-sized; they don’t have an IT team that can necessarily maintain or improve on their organization’s increasingly complicated security posture.

In the case of larger mid-sized, or just large, companies the activities of insurers like AIG could force them to modify their security practices for the better. Insurance is generally regarded as cheaper than security and so seeing the insurance companies demand better security to receive insurance is a way of incentivizing organizational change. Further change can be incentivized by government adopting policies such as requiring a particular security posture in order to bid on, or receive, government contracts. This governmental incentivization doesn’t necessarily encourage change for small organizations that already find it challenging to contract with government due to the level of bureaucracy involved. For other organizations, however, it will mean that to obtain/maintain government contracts they’ll need to focus on getting the basics right. Again, this is about aligning incentives such that organizations see value in changing their operational policies and postures to close off at least some security vulnerabilities. There may be trickle down effects to these measures, as well, insofar as even small-sized companies may adopt better security postures based on actionable guidance that is made available to the smaller companies responsible for supplying those middle and larger-sized organizations, which do have to abide by insurers’ or governments’ requirements.1

While the aforementioned incentives might improve the cybersecurity stance of some organizations the key driver of ransomware and other criminal activities online is its sheer profitability. The economics of cybercrime have been explored in some depth over the past 20 years or so, and there are a number of conclusions that have been reached that include focusing efforts on actually convicting cybercriminals (this is admittedly hard where countries like Russia and former-Soviet Republic states indemnify criminals that do not target CIS-region organizations or governments) to selectively targeting payment processors or other intermediaries that make it possible to derive revenues from the criminal activities.

Clearly it’s not possible to prevent all cybercrime, nor is it possible to do all things at once: we can’t simultaneously incentivize organizations to adopt better security practices, encourage changes to insurance schemas, and find and address weak links in cybercrime monetization systems with the snap of a finger. However, each of the aforementioned pieces can be done with a strategic vision of enhancing defenders’ postures while impeding the economic incentives that drive online criminal activities. Such a vision is ostensibly shared by a very large number of countries around the world. Consequently, in theory, this kind of strategic vision is one that states can cooperate on across borders and, in the process, build up or strengthen alliances focused on addressing challenging international issues pertaining to finance, crime, and cybersecurity. Surely that’s a vision worth supporting and actively working towards.

  1. To encourage small suppliers to adopt better security practices when they are working with larger organizations that have security requirements placed on them, governments might set aside funds to assist the mid-sized and large-sized vendors to secure down the supply chain and thus relieve small businesses of these costs. ↩︎
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2014.7.2

[Mark Carney’s] prescription: End through strict regulation and resilience tests the scandal of too-big-to-fail, where “bankers made enormous sums” and “taxpayers picked up the tab for their failures.” Recreate fair and effective markets with real transparency and make every effort — through codes of conduct and even regulatory obligations — to instill a new integrity among traders (even if social capital cannot be contractual). Curtail compensation offering large bonuses for short-term returns; end the overvaluing of the present and the discounting of the future; ensure that “where problems of performance or risk management are pervasive,” bonuses are adjusted “for whole groups of employees.”

Above all, understand that, “The answers start from recognizing that financial capitalism is not an end in itself, but a means to promote investment, innovation, growth and prosperity. Banking is fundamentally about intermediation — connecting borrowers and savers in the real economy. In the run-up to the crisis, banking became about banks not businesses; transactions not relations; counterparties not clients.”

In other words, human beings matter. An age that has seen emergence from poverty on a massive scale in the developing world has been accompanied by the spread of a new poverty (of life and of expectations) in much of the developed world. Global convergence has occurred alongside internal divergence. Interdependence is a reality, but the way it works is skewed. Clinton noted that ants, bees, termites and humans have all survived through an unusual shared characteristic: They are cooperative forms of life. But it is precisely the loss at all levels of community, of social capital, that most threatens the world’s stability and future prosperity.

Roger Cohen, “Capitalism Eating Its Children”
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2013.7.10

… the cultural, political, and privacy concerns raised by the new business alliances of search engines, social networks, and carriers cannot be translated into traditional economic analysis. They raise questions about the type of society we want to live in–a holistic inquiry that cannot be reduced to the methodological individualism of economics.

Frank Pasquale. (2010). “Beyond Innovation and Competition: The Need for Qualified Transparency in Internet Intermediaries.” Northwestern University Law Review 104(1).
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Social and Economic Threats to the Internet’s Infrastructure

Bruce Schneier, talking about the social and economic threats to the Internet’s infrastructure