WhatsApp and Encryption

Encryption is in the news; last night you may have noticed WhatsApp inform you that your messages are now “end-to-end encrypted”, and it’s hard not to link this to other events such as repeated attempts by the FBI to get Apple to let them inside its products.

The issue is one of privacy – should your messages to others on your phone be subject to warrants by governments and law enforcement agencies to access them? By adding this level of encryption, WhatsApp cannot see the messages we send, and hence cannot comply with any such warrant. No “wire tap” can be put on your WhatsApp messages, and nobody can “overhear” them, or “eavesdrop” on them any more.

For many people, that’s a great thing – nobody wants others muscling in on private correspondence. Equally, of course, it comes at the same time as another vast tranche of private correspondences regarding tax avoidance and offshore tax havens, were made publicly available in the Panama Papers. Which illustrates the tension: having privacy is great provided we are all nice and law abiding citizens doing nothing wrong. The moment we start doing things that are wrong, then our private correspondences are where we will discuss that wrongdoing.

And of course, on a much more sinister level, it is alleged that terrorists use apps like WhatsApp to communicate in order to avoid the attentions of law enforcement, and hence the desire of the FBI to get hold of the iPhone of a US terrorist. Hence should we afford terrorists more protection by allowing WhatsApp to encrypt like this, or should we, as the UK government has spoken of doing (although not in light of the Panama papers, it might be noted), in the interests of national security?

What could economics shed on to this? One insight economics often affords is that there is an optimal level of everything. We might assert the optimal level of illegal activity is zero, but when there is a private benefit to engaging in illegal activity, and a cost to law enforcement, then there must be a trade off such that the optimal level is not zero. It would take a practically infinite amount of resources to stamp out every kind of illegal activity and as such is impractical. Hence we cannot expect to stamp out terrorism completely, and we must accept that it will always exist. If end-to-end encrypted messaging services exist, they will be used by those engaging in illegal activity. But by and large there will be other ways in which to catch such people in the act of carrying out illegal activities such that impinging on the civil liberties of the masses need not be a necessary cost of making the job of law enforcement much easier.

Equally, a little reasoning from statistical or econometric thinking might help here, too. With any decision in econometrics, there is the risk of a Type I or Type II Error. These are false positives, and false negatives, respectively: incorrectly rejecting something that is true, and incorrectly not rejecting something that is false. With easier ability to eavesdrop on people, will law enforcement agencies use this to pursue the wrong people, people who are simply going about their day-to-day activities without engaging in any kind of terrorist activities? Of course greater surveillance means that catching terrorists will be easier, but will it mean that innocent people are caught up in the machinery set up to catch terrorists?

Universal Credit: Who Should We Trust?

Last week we covered unemployment benefits, and looked at the extent of Job Seeker’s Allowance (JSA). We also looked at the existence of in-work benefits, and discussed how they are an attempt to avoid a poverty trap – where people can end up worse off when taking a job relative to their position out of work with JSA.

The last government, driven in particular by Iain Duncan Smith, announced plans to replace six benefits with one single payment, called the Universal Credit (UC). Those six benefits are “income-based jobseeker’s allowance, income-related employment and support allowance, income support, child tax credit, working tax credit and housing benefit“.

We discussed in Monday’s Economics Conversations the impact of complex systems administered by governments – they tend to create loopholes and confused incentives, and likely discourage use of them as was originally intended (i.e. to help those out of work to get back into work). Hence simplifying such a range of different payments – which in general are in-work benefits in addition to JSA – ought to, in principle, be a good idea.

However, big changes are being made, and to big complicated systems. Different people will be affected differently by the changes, and what matters most to people is whether they’ll be made better or worse off as a result. We care, by and large, as a people, if those seeking to better themselves and work hard find themselves worse off by changes like these – it makes little sense to discourage people from trying to do better.

But how can we know what the impact will be? Can we trust the government’s own figures on the matter? Can we trust other attempts to understand the impact of changes? Doesn’t everybody have an axe to grind, some bias in their analysis? By and large, over the years, the Institute for Fiscal Studies (IFS) has established a reputation for being as thorough and objective as possible in its analyses of the things governments get up to (and the proposals made by oppositions around election time). As a result, their intervention today on Universal Credit is important.

The title of the press release is informative: “Universal credit cuts support for working families, but helps make work pay where current system creates worst problems”. The UC will be effective in reducing the overall spend on benefits by £2.7bn, the report finds, hence it’s clearly effective in that regard, and further it will “make work pay where current system creates worst problems”: so it will address some cases of the poverty trap. However, the report states that 3.1 million households will be worse off as a result of UC, and 2.3m will be better off, hence the BBC leads with the assertion that “The introduction of Universal Credit (UC) will leave working families worse off on average, the Institute for Fiscal Studies has said”.

It’s well worth a read of the IFS’s actual report, to get a sense of how we go about evaluating public policy as thoroughly and objectively as possible. Not least, it will help you to determine whether indeed, as the government asserts, the IFS “ignored other benefits such as extra childcare”. Usually a quick CTRL+F to search the document is informative. I did a search for the term “childcare”, and found five references to the term in its entirety. On page 9 of the linked PDF document (only 28 pages), the report states “One area where the UC system has been made more generous relative to the legacy system is in the level of subsidy given to childcare costs”.