The wrong way to protect privacy

Members of Congress are finally getting serious about protecting privacy online. If only they had some better ideas on how to do so.

The latest entrant is a bill sponsored by Sens. Josh Hawley, R-Mo., and Mark Warner, D-Va. Among other things, it would require big-tech platforms such as Facebook and Google to tell users how much money their personal information generates, and to publicly disclose how much their data is worth in aggregate.

At first glance, this seems promising. Much of the digital economy is built on a trade-off: Consumers get free services – email, maps, social media – in return for divulging their data. Yet there’s significant evidence that they don’t fully understand this exchange. In a phenomenon known as the privacy paradox, they routinely tell pollsters that they care about privacy even while using services that blithely violate it. Last year, as Facebook suffered one data scandal after another, its user base only grew.

Making the bargain more explicit sounds like a reasonable solution.

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In reality, consumers will have no idea what to do with this added transparency. They’re already overloaded with information about how online services employ their data. Adding another meaningless statistic will hardly help.

And placing a value on data is hard. In isolation, an individual user’s data is worth precisely $0.00. Only when aggregated and analyzed at scale can it generate revenue.

Anticipating this complaint, the bill directs the Securities and Exchange Commission to “develop methodologies for calculating data value” and to “enable businesses to adopt methodologies that reflect the different uses, sectors, and business models.” That’s a recipe for boundless red tape.

A far better approach is to shift the burden of managing data from users to companies. One promising method is to offer an “information fiduciary” standard. Much as a lawyer must act in the best interests of her client, such fiduciaries would be prohibited from handling data in ways that harmed their users.

In this way, consumers would know if their data was in good hands without needing an engineering degree. Companies would have an incentive to behave. And Congress could otherwise occupy itself. Everybody wins.

Bloomberg Opinion editorial.