The economics of spam

Junk emails cost $20bn a year. Not just an irritation.

Here's a fascinating new paper (pdf) from the Journal of Economic Perspectives on the economics of spam, by Justin Rao and David Reiley:

The negative externalities imposed by spam include wasted time for consumers: both wading through irrelevant advertisements in one’s inbox and missing an important message that went to the junk mail folder. They also include the costs important message that went to the junk mail folder. They also include the costs of server hardware, which requires more than five times as much capacity as would be required in the absence of spam, as well as the costs of spam prevention services provided by firms to reduce the burden on users. . .

Taken together, the total costs of spam worldwide today appear to be approximately $20 billion, in round numbers.

The authors review literature on the revenue of spammers, and find that it's likely to be around $300m a year. In other words, spam destroys around $19.7bn dollars of value every year. The authors compare this to car theft, which imposes societal costs of around $10bn and brings revenues to the thieves of around $1bn; and to driving a car, which imposes societal costs of around five cents a mile and brings in average revenue of around 60 cents a mile.

Clearly all these numbers are extremely rough estimates, but if they are even in the same ballpark as the truth then it is clear that spam ought to be a public policy priority to a far greater extent than it actually is. Imagine if the number of car thefts doubled overnight; would people really question whether that calls for governmental involvement?

The problem the authors identify is one of negative externalities, similar to the issues raised by carbon emissions. So one would expect the solution to be analogous to the solution economists often call for to deal with externalities, which is a Pigovian tax - charging someone who harms society an amount equivalent to the damage they do. Unfortunately, as the authors show, such a measure is pretty much impossible when it comes to email spam. The spammers would obviously not co-operate, and every alternative involves trying to graft on some form of payment mechanism to email, which is a protocol incredibly unsuited technologically to any such addition.

Instead, the best thing to do is probably to hit the spammers where it hurts: their revenues.

One fruitful avenue is to put legal pressure on domestic banks that process payments from foreign banks known to act on behalf of spam merchants. This could put downward pressure on conversion rates and with them, proifts. Another proposal comes from our colleague Randall Lewis, who imagines “spamming the spammers” by identifying spam emails and placing fake orders on spam-advertised stores. This step would increase the merchants’ costs dramatically, as they would find it much more difficult to fullfil orders, and their banks may raise their fees if they submit many invalid payment authorization requests. Of course, an unintended consequence is that from time to time, a legitimate merchant will be inundated with bogus product orders.

Commenting on the paper, Digitopoly's Joshua Gans points out that, under US law, that may not be entirely legal:

A few years back I contacted Yahoo and Google with an idea to counter spammers. What if for each spam email that they picked up, they responded — perhaps entering details into phishing forms? This would overwhelm spammers and they would not be able to find ‘legitimate’ responses from the gullible few. That would really alter their returns. Unfortunately, it was explained to me that such a measure would constitute an attack by a US corporation and, apparently, that is against US law.

Spam may be here to stay, then. The real solutions are technological, and don't involve fixing email so much as abandoning it altogether; the time for being able to accept free, unsolicited email from anyone seems to be coming to an end. Those who are trying to build its replacement will be happy indeed to hear that.

The full paper is a surprisingly good read; if you're looking for something to flick through on an e-reader over the weekend, why not give it a go?

Spam, spam, spam, spam, spam, spam, spam, spam, lovely spam, wonderful spam. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Photo: Getty Images
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The future of policing is still at risk even after George Osborne's U-Turn

The police have avoided the worst, but crime is changing and they cannot stand still. 

We will have to wait for the unofficial briefings and the ministerial memoirs to understand what role the tragic events in Paris had on the Chancellor’s decision to sustain the police budget in cash terms and increase it overall by the end of the parliament.  Higher projected tax revenues gave the Chancellor a surprising degree of fiscal flexibility, but the atrocities in Paris certainly pushed questions of policing and security to the top of the political agenda. For a police service expecting anything from a 20 to a 30 per cent cut in funding, fears reinforced by the apparent hard line the Chancellor took over the weekend, this reprieve is an almighty relief.  

So, what was announced?  The overall police budget will be protected in real terms (£900 million more in cash terms) up to 2019/20 with the following important caveats.  First, central government grant to forces will be reduced in cash terms by 2019/20, but forces will be able to bid into a new transformation fund designed to finance moves such as greater collaboration between forces.  In other words there is a cash frozen budget (given important assumptions about council tax) eaten away by inflation and therefore requiring further efficiencies and service redesign.

Second, the flat cash budget for forces assumes increases in the police element of the council tax. Here, there is an interesting new flexibility for Police and Crime Commissioners.  One interpretation is that instead of precept increases being capped at 2%, they will be capped at £12 million, although we need further detail to be certain.  This may mean that forces which currently raise relatively small cash amounts from their precept will be able to raise considerably more if Police and Crime Commissioners have the courage to put up taxes.  

With those caveats, however, this is clearly a much better deal for policing than most commentators (myself included) predicted.  There will be less pressure to reduce officer numbers. Neighbourhood policing, previously under real threat, is likely to remain an important component of the policing model in England and Wales.  This is good news.

However, the police service should not use this financial reprieve as an excuse to duck important reforms.  The reforms that the police have already planned should continue, with any savings reinvested in an improved and more effective service.

It would be a retrograde step for candidates in the 2016 PCC elections to start pledging (as I am certain many will) to ‘protect officer numbers’.  We still need to rebalance the police workforce.   We need more staff with the kind of digital skills required to tackle cybercrime.  We need more crime analysts to help deploy police resources more effectively.  Blanket commitments to maintain officer numbers will get in the way of important reforms.

The argument for inter-force collaboration and, indeed, force mergers does not go away. The new top sliced transformation fund is designed in part to facilitate collaboration, but the fact remains that a 43 force structure no longer makes sense in operational or financial terms.

The police still have to adapt to a changing world. Falling levels of traditional crime and the explosion in online crime, particularly fraud and hacking, means we need an entirely different kind of police service.  Many of the pressures the police experience from non-crime demand will not go away. Big cuts to local government funding and the wider criminal justice system mean we need to reorganise the public service frontline to deal with problems such as high reoffending rates, child safeguarding and rising levels of mental illness.

Before yesterday I thought policing faced an existential moment and I stand by that. While the service has now secured significant financial breathing space, it still needs to adapt to an increasingly complex world. 

Rick Muir is director of the Police Foundation