Smile, burglars, you're starring on a Web site, Sydney Morning Herald, February 9, 2001.
Known as "spam" in the unflattering vernacular of webheads, unsolicited commercial email has become a popular way to do online advertising. The incremental cost of sending an additional email message is nearly zero. That means the total cost to the sender for sending even a million electronic solicitations is measured in pocket change. Even at a response rate far lower than that for physical direct mail, spam mail is profitable.
That's the upside. Recipients, however, often tell a far less flattering tale of clogged inboxes, increased connection times, and a palpable sense of irritation and invasion. Not helping matters is that many spammers appear to be somewhat less than reputable themselves, and customarily provide fake return addresses that violate the culture, and arguably long-established technical standards, of the Internet. That most spam offers sleazy sex, pyramids schemes and other ways to "Make Money Fast," and questionable just adds insult to injury.
Consumers aren't the only ones who pay for spam. A 1998 survey conducted by the Commercial Internet Exchange found that 76 percent of U.S. Internet providers say spam increases their operating costs. Netcom estimates that about 10 percent of each customer's monthly bill goes to spam-fighting efforts. In 1997, spam flooded AT&T Worldnet's outgoing mail system, delaying legitimate email for hours. The Small Business Administration says there are over 25 million small companies; if even a fraction tried to spam a million Internet users, the ensuing congestion would put a Manhattan rush hour to shame.
This is all very different from the traditional direct marketing world. In that world, senders have to pay to send mail: Paper junk mail has to have postage. Even if it's a bulk mail rate, and even if that rate is set by the government, this cost is enough to make it uneconomical to spam the U.S. Postal system. As a result, junk mail seldom rises above a minor inconvenience, a few too many catalogs from Pottery Barn.
Not so with email. Internet providers customarily charge a flat rate for a server that can be used to send email, and there's no postage required on email. Moreover, the recipients often bear significant costs. Some people already pay per message received or per hard drive space consumed on a mail server. And, as metered—and slow—wireless PDA and cell phone connections become more popular, the cost to recipients is likely to climb even higher.
It's possible to take action on your own against spam. You could examine the message, trace its origin, and report the spam to the administrators of the network from where it originated. You could purchase anti-spam software or spend time configuring your computer to rely on the free, though not particularly effective, MAPS Realtime Blackhole List. If the message appears fraudulent, you could contact the Federal Trade Commission or state government offices. But these solutions have non-trivial costs of their own—and taking the time to set them up almost certainly outweighs any benefits.
To an economist, all of this sounds familiar. From an economic perspective, spam is just another form of pollution, an activity that imposes costs on people without their permission. Like all pollution, the polluters—in this case, direct marketers—impose these costs because of the benefits to them—in this case, the profits they make from sales, however few.
Like most victims of pollution, email recipients are powerless against the polluters. To reduce the pollution, they'd have to do something to change the polluter's cost/benefit calculus. But for any victim of pollution, the cost of the time and effort needed to shift costs back where they belong usually swamp any benefits that he gets from stopping the spam. That's why few people bother to email ISPs about spam. Even if you succeed, finding out where to send the mail is more trouble than it's worth. It would seem that for spam, as for any other pollution, the only way to win is get the government to step in and raise costs.
Given this economic logic, it's not surprising that legislators have taken preliminary steps against unsolicited commercial email. Washington State approved what appears to be the nation's toughest anti-spam law, which outlawed email with misleading information in the "Subject: line" of a message or invalid reply addresses. But a state judge struck down the law as unconstitutional, saying it violates the interstate commerce clause of the U.S. Constitution.
In the session of the U.S. Congress that ended in 2000, at least three anti-spam bills had been debated, and it's a sure bet that proponents will re-introduce them in this Congress. But the Supreme Court's growing respect for commercial free speech rights suggests that any prohibition might not survive a First Amendment challenge. Even if it does, federal prohibitions on spam will most likely spur determined spammers into fleeing offshore. A substantial percentage of current spam already seems to be coming from Pacific Rim nations. It seems that even the government will be powerless against spam.
There is another solution to the spam problem, one that does not involve using the power of the state. There are several technologies on the horizon that could be used to change the cost/benefit calculus so that spam would no longer pay. The technologies would do this by giving the victims of spam a relatively cheap way to impose costs directly on spammers.
Consider a system that would allow people to set up a robot guarddog that would police incoming email. Using a set of user-defined rules, email from pre-programmed domain names, such as yourcompany.com, would be sniffed and automatically approved. So would messages from friends, family, and prior correspondents. Messages from known mailing lists would be okay, as would mail from .org, .gov, and .mil addresses. However, the e-hound would reject any message entitled "MAKE MONEY FAST" or "LASER PRINTER TONER CARTRIDGES" regardless of who it came from.
The e-watchdog would also be programmed to accept email from unknown senders only if they agreed to pay for the privilege. Without bothering the owner of the account, it would reply to any such message and tell the sender how much "postage" he owed. If anti-spam sentiments run as deep as they currently appear to be, it's likely that a polite custom would arise: Unknown correspondents would attach the necessary small payment to the message. After the recipient opened the message, he would return the payment—or simply not deposit it—if the contents were sufficiently interesting.
If enough people used this software, you'd only have to charge as little as a fraction of a cent to effectively ban spam from your inbox forever. The higher cost of watchdog-protected accounts suddenly would make spam uneconomical. Put another way, it would shift some of the cost of dealing with spam back to the sender, where it probably belongs. Well-known people might charge far more, $5 or $10 per message, for a moment of their time. The exact figure doesn't matter to us right now; market forces will take over and determine the prices once such a system is in place.
The postage would not have to be paid in legal tender. Any activity that cost the sender enough would do the trick. One scheme that's been proposed uses computation instead of currency. Called "Hash Cash," this system would require the sender not to send money, but to instruct his computer to perform a complex calculation that might take a few seconds even on a fast microprocessor. If a would-be spammer had to perform one second of computation for each person he spammed, the pace of spam would slow to glacial. "This can be used as the basis for an ecash system measured in burnt CPU cycles," writes Adam Back, a U.K. cryptographer and Hash Cash inventor. "Such cash systems can be used to throttle systematic abuses of un-metered Internet resources... On a global scale use of bandwidth and CPU resources is wasted. The spam recipients time is wasted as well, and in the case of people using commercial service providers, some recipients have metered phone calls, and some service providers charge hourly rates for connection time."
For either of these systems to become widespread enough to make a difference, technological standards would have to be upgraded to support them. The venerable "Simple Mail Transport Protocol," (SMTP) which is built into most computers connected to the Internet, would be a natural place to start. The Internet Engineering Task Force would likely need to be convinced such a move would be worth the considerable engineering effort and cost.
Even if that happened, there's still one big problem: Digital cash does not exist. Not yet, at least, and certainly not legally. Technologists have known since the 1980s how to create anonymous digital cash, but regulatory hurdles, combined with the bankruptcy of DigiCash, the main patent holder, have stymied its near-term prospects.
The regulatory justification: Anonymous digital cash would accelerate money laundering and encourage tax evasion, U.S. government officials have said. Purchases of software or digital music could be made online through an encrypted transaction that could defeat regulators' ability to extract sales taxes. Criminals could use it in untraceable ransom demands. "Internet digital cash worries national authorities charged with preventing money laundering," writes Michael Froomkin, a professor of law at the University of Miami. "Digital cash is obviously more portable and mobile than ordinary paper currency... Other unsavory possibilities include vastly simplified insider trading in securities transactions, the sale of corporate and personal secrets, blackmail and 'perfect crimes.'"
No such barriers prevent the development of "Hash Cash." It needs only the right software.
In the meantime, spam isn't the only social problem for which the new economy might allow the emergence of new, non-governmental solutions. For example, the novelist Neal Stephenson has suggested using the Internet to form global block watches, associations of people around the globe who agree to watch each other's neighborhoods. The result would be an around the clock watch, around the world. One recent news report1 says one homeowner is fighting a burglary by posting photos of the intruders who were captured on a computer's camera.
Of course, as Stephenson points out, the technology won't solve the problem directly. Someone still has to go out and organize the "neighbors." But the technology makes it worthwhile to do so.