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.

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Forget planning for no deal. The government isn't really planning for Brexit at all

The British government is simply not in a position to handle life after the EU.

No deal is better than a bad deal? That phrase has essentially vanished from Theresa May’s lips since the loss of her parliamentary majority in June, but it lives on in the minds of her boosters in the commentariat and the most committed parts of the Brexit press. In fact, they have a new meme: criticising the civil service and ministers who backed a Remain vote for “not preparing” for a no deal Brexit.

Leaving without a deal would mean, among other things, dropping out of the Open Skies agreement which allows British aeroplanes to fly to the United States and European Union. It would lead very quickly to food shortages and also mean that radioactive isotopes, used among other things for cancer treatment, wouldn’t be able to cross into the UK anymore. “Planning for no deal” actually means “making a deal”.  (Where the Brexit elite may have a point is that the consequences of no deal are sufficiently disruptive on both sides that the British government shouldn’t  worry too much about the two-year time frame set out in Article 50, as both sides have too big an incentive to always agree to extra time. I don’t think this is likely for political reasons but there is a good economic case for it.)

For the most part, you can’t really plan for no deal. There are however some things the government could prepare for. They could, for instance, start hiring additional staff for customs checks and investing in a bigger IT system to be able to handle the increased volume of work that would need to take place at the British border. It would need to begin issuing compulsory purchases to build new customs posts at ports, particularly along the 300-mile stretch of the Irish border – where Northern Ireland, outside the European Union, would immediately have a hard border with the Republic of Ireland, which would remain inside the bloc. But as Newsnight’s Christopher Cook details, the government is doing none of these things.

Now, in a way, you might say that this is a good decision on the government’s part. Frankly, these measures would only be about as useful as doing your seatbelt up before driving off the Grand Canyon. Buying up land and properties along the Irish border has the potential to cause political headaches that neither the British nor Irish governments need. However, as Cook notes, much of the government’s negotiating strategy seems to be based around convincing the EU27 that the United Kingdom might actually walk away without a deal, so not making even these inadequate plans makes a mockery of their own strategy. 

But the frothing about preparing for “no deal” ignores a far bigger problem: the government isn’t really preparing for any deal, and certainly not the one envisaged in May’s Lancaster House speech, where she set out the terms of Britain’s Brexit negotiations, or in her letter to the EU27 triggering Article 50. Just to reiterate: the government’s proposal is that the United Kingdom will leave both the single market and the customs union. Its regulations will no longer be set or enforced by the European Court of Justice or related bodies.

That means that, when Britain leaves the EU, it will need, at a minimum: to beef up the number of staff, the quality of its computer systems and the amount of physical space given over to customs checks and other assorted border work. It will need to hire its own food and standards inspectors to travel the globe checking the quality of products exported to the United Kingdom. It will need to increase the size of its own regulatory bodies.

The Foreign Office is doing some good and important work on preparing Britain’s re-entry into the World Trade Organisation as a nation with its own set of tariffs. But across the government, the level of preparation is simply not where it should be.

And all that’s assuming that May gets exactly what she wants. It’s not that the government isn’t preparing for no deal, or isn’t preparing for a bad deal. It can’t even be said to be preparing for what it believes is a great deal. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to domestic and global politics.