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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Can a “Momentum moment” revive the fortunes of Germany’s SPD?

Support for the centre-left Social Democratic Party (SPD) has sunk into third place, behind the far right Alternative for Germany.

Germany has crossed a line: for the first time in the history of the federal republic, the Social Democratic Party (SPD) has sunk into third place, polling just 15.5 per cent – half a point behind the far-right Alternative for Germany (AfD). The poll was published on the day the SPD membership received their postal ballots on whether to enter another grand coalition with Angela Merkel’s Christian Democrats, and inflamed debate further.

For the grassroots coalition opposed to the so-called GroKo (Große Koalition) the poll is proof that the SPD needs a fundamental change of political direction. Within the two grand coalitions of recent years, the SPD has completely lost its political profile. The beneficiary each time has been the far right. Yet another GroKo seems likely to usher in the end of the SPD as a Volkspartei (people’s party). Taking its place would be the AfD, a deeply disturbing prospect.

For the SPD leadership, the results are proof that the party must enter a grand coalition. Failure to do so would likely mean new elections (though this is disputed, as a minority government is also a possibility) and an SPD wipeout. The SPD’s biggest problem, they argue, is not a bad political programme, but a failure to sell the SPD’s achievements to the public.

But is it? The richest 45 Germans now own as much as the bottom 50 per cent. According to French economist Thomas Piketty, German income inequality has now sunk to levels last seen in 1913. Perhaps most shockingly, the nominally left-wing SPD has been in government for 16 of the last 20 years. Whatever it has been doing in office, it hasn’t been nearly enough. And there’s nothing in the present coalition agreement that will change that. Indeed, throughout Europe, mainstream left parties such as the SPD have stuck to their economically centrist programmes and are facing electoral meltdown as a result.

The growing popular anger at the status quo is being channeled almost exclusively into the AfD, which presents itself as the alternative to the political mainstream. Rather than blame the massive redistribution of wealth from the bottom to the top, however, the AfD points the finger at the weakest in society: immigrants and refugees.

So how can the SPD turn things around by the next federal election in 2021? 

The party leadership has promised a complete programme of political renewal, as it does after every disappointing result. But even if this promise were kept this time, how credible is political renewal within a government that stands for more of the same? The SPD would be given the finance ministry, but would be wedded to an austerity policy of no new public debt, and no increased tax rises on the rich. 

SPD members are repeatedly exhorted to separate questions of programmatic renewal from the debate about who leads the party. But these questions are fundamentally linked. The SPD’s problem is not its failure to make left-wing promises, but the failure of its leaders to actually keep them, once in office.

The clear counter-example for genuine political renewal and credibility is, of course, Labour under Jeremy Corbyn. In spite of all dire warnings that a left-wing programme was a sure-fire vote-loser, Labour’s massively expanded membership – and later electorate – responded with an unprecedented and unforeseen enthusiasm. 

A radical democratic change on the lines of Labour would save the SPD party from oblivion, and save Germany from an ascendent AfD. But it would come at the cost of the careers of the SPD leadership. Sadly, but perhaps inevitably, they are fighting it tooth and nail.

Having promised an “especially fair” debate, the conflict over the GroKo has suddenly surged to become Germany’s Momentum moment - and the SPD leadership is doing everything it can to quash the debate. Party communications and so-called “dialogue events” pump out a pro-GroKo line. The ballots sent out this week came accompanied by an authoritative three-page letter on why members should vote for the grand coalition.

Whether such desperate measures have worked or not will be revealed when the voting result is announced on 4 March 2018. Online, sentiment is overwhelmingly against the GroKo. But many SPD members (average age is 60) are not online, and are thought to be more conservative.

Whatever the outcome, the debate isn’t going away. If members can decide on a grand coalition, why not on the leadership itself? A direct election for the leadership would democratically reconnect the SPD with its grassroots.

Unless the growth in inequality is turned around, a fundamental reboot of the SPD is ultimately inevitable. Another grand coalition, however, will postpone this process even further. And what will be left of the SPD by then?

Steve Hudson is a Momentum activist and a member of both Labour and the SPD. He lives in Germany, where he chairs the NoGroKo eV campaign group.