An Illusion of Security, Stability, and Control

The online world is a very interesting place. While we frequently say that we have concerns about privacy, about how our data is being used, and about what information is publicly available to us, very few people delete their social media accounts or take real action when a data breach occurs. We have been moving more and more of our life online, and we have been more accepting of devices connected to the internet that can either be hacked or be used to tacitly spy on us than we would expect given the amount of time we spend expressing concern for our privacy.

 

A quick line from Tyler Cowen’s book The Complacent Class may explain the contradiction. “A lot of our contentment or even enthrallment with online practices may be based on an illusion of security, stability, and control.”

 

I just read Daniel Kahneman’s book Thinking Fast and Slow and in it he writes about a common logical fallacy, the substitution principle. When we are asked difficult questions, we often substitute a simpler question that we can answer. However, we rarely realize that we do this. Cowen’s insight suggests that we are using this substitution fallacy when we are evaluating online practices.

 

Instead of thinking deeply and critically about our privacy, safety, and the security of our personal or financial information in a given context, we substitute. We ask ourselves, does this website intuitively feel legitimate and well put together? If the answer is yes, we are more likely to enter our personal information, allow our online movements to be tracked, enter our preferences, and save our credit card number.

 

If matching technology works well, if our order is fulfilled, and if we are provided with more content that we can continue to enjoy, we will again substitute. Instead of asking whether our data is safe or whether the value we receive exceeds the risk of having our information available, we will ask if we are satisfied with what was provided to us and if we liked the look and feel of what we received. We can pretend to answer the hard questions with illusory answers to easier questions.

 

In the end, we land in a place where the companies and organizations operating on the internet have little incentive to improve their systems, to innovate in ways that create disruptive changes, or to pursue big leaps forward. We are already content and we are not actually asking the hard questions which may push innovation forward. This contentment builds stagnation and prevents us from seeing the risks that exist behind the curtain. We live in our illusion that we control our information online, that we know how the internet works, and that things are stable and will continue to work, even if the outside world is chaotic. This could be a recipe for a long-term disaster that we won’t see coming because we believe we are safely in control when we are not.

A Fresh Take on Public Asset Management

An area that I did not understand very well, since I have no real experience with city government, from Bruce Katz and Jeremy Nowak’s book The New Localism has to do with the management of publicly owned assets. According to Katz and Nowak, public infrastructure, public land, and locally owned buildings and spaces are underutilized and the value of these assets is poorly managed. Part of the reason for this is that much of government is split and segmented. One agency has control over a piece of land, and another agency has ownership of another near by asset. This fragmentation makes it hard for the city government to consider unified programs or projects that would utilize both of the nearby assets in a uniform manner.

 

Another issue the authors discuss with public asset management is elected political officials holding veto power over the use of public assets. Daniel Kahneman in his book Thinking Fast and Slow describes our risk avoidance tendencies, and I think these tendencies can easily be viewed in our elected officials and their veto power. Elected officials, like everyone else, is more worried about potential losses than they are excited about potential gains from the use or sale of assets. What is worse with elected officials however is that they ware worried about the loss of an electoral base, and the loss of a job from decisions regarding the use of public assets.

 

The authors write, “The removal of the political class from public asset management has a salutary effect on democracy by transitioning politicians from asset gatekeepers to consumer and citizen advocates on behalf of public asset productivity and quality.”

 

Instead of having elected officials be the ones in control of public assets, the authors suggest transferring ownership to quasi-governmental organizations that blend public, private, and civic actors. The authors envision new forms of port authorities or development organizations that would control public assets with a focus on maximizing public benefit. Elected officials would then be responsible for helping develop innovative uses for public assets rather than being responsible for the failure of projects and programs that use public assets. This is the essence of the point  that the authors make in removing the political class from public asset management. A rational organization that controls such assets can defragment them, and put them to better and more productive uses.

Cities Suffer From Loss Aversion

“Many U.S. cities are, in essence, a fact-free zone when it comes to public assets. They have little knowledge of the assets they own and the market value of those assets, either under current or altered zoning regimes. Ironically, U.S. cities know what they owe (such as pension liabilities) but not what they own. Rectifying that disconnect is the first step toward sane and sensible public finance,” write Bruce Katz and Jeremy Nowak in their book The New Localism.

 

Katz and Nowak highlight the ways that local and regional governments in cities and metropolitan areas are establishing new networks to develop innovative solutions to global problems that have vexed state and national governments since the early 2000’s. Cities are reinventing ideas of governance and finding ways to adjust to the challenges they face in a way that larger governments seem to be unable to do. One area that is holding most city governments back, however, is financing.

 

Local government financing does well when the economy is strong and when people are moving to the area to create and fill jobs. However, when the economy is weak and people are moving away, local governments cannot keep up. Cycles of strong and weak economies have lead to the situation that Katz and Nowak described in the quote I used to open this post. Cities focus on their liabilities and worry about the costs and expenses that pile up and become major obstacles whenever the economy turns south. The authors argue that these pressures can become a singular focus for local government officials, preventing them from thinking clearly about the opportunities they face while limiting their creativity to adjust to new economic conditions and develop innovative solutions.

 

I don’t find it too surprising that city governments are more worried about what they owe than what they own. I am currently reading Daniel Kahneman’s book Thinking Fast and Slow and his descriptions about the way people respond to potential losses seems to be right in line with the behavior that Katz and Nowak describe for our city governments. We feel a loss of $100 as equal in terms of pain as we feel joy from a gain of $200. That means our losses are twice as painful as a gain is joyous. Mayors, city managers, and elected officials have their jobs on the line and can be held responsible for economic forces that are far beyond their control. This is likely a big part of what leads to this risk aversion among our local governments, and why so many of them are focused on what they owe and what could go wrong in a downturn. The narrow focus that this creates for governments, however, is likely to exacerbate any economic shocks that they do experience. By failing to plan and think big, city governments are failing to get the most out of the assets they do have, and are failing to build a buffer of protection for themselves and their residents if an economic shock occurs.

 

The solution that Katz and Nowak provide is a structure of new networked governance, where governments are able to provide the authority and base funding for projects and ideas, but private organizations can manage public assets and capitalize on charitable and foundation giving for more risky projects. This opens an avenue for bold movement that risk averse elected officials and public agencies could not approach. It allows cities to maximize their assets, rather than forget about them altogether.