The Feds: A Fox in Home Depot’s Henhouse

According to New York Times columnist Joe Nocera (“Criminal Card Games,” September 16), Home Depot’s security breach – the latest in an ongoing series of extensive exposures of customer financial information from large retailers — explains “why the federal government needs to get involved. With the banks and retailers at loggerheads, only the government has the ability to force a solution — or at least make it painful enough for companies with lax security to improve.”

But where this particular henhouse is concerned, the federal government is not just a fox, but one with a voracious all-hen diet, Peeping Tom compulsions and X-ray vision.

The monoculture of big box retailers, whose scale and homogeneity make them such lucrative targets for cybercriminals in the first place, is entirely a creation of federal subsidies. The economic advantage of vertical integration is not an inherent byproduct of economies of scale, but the artificial result of offloading the costs of large-scale distribution infrastructure through transportation subsidies.

Nocera notes that, in the account of former managers to Bloomberg Businessweek, Home Depot’s upper management allegedly deemed “C-level security” sufficient against expected attacks, since “ambitious upgrades would be costly and might disrupt the operation of critical business systems.” Only a plethora of interventions limiting liability and competitive pressure spare companies from being forced by market discipline to allocate revenue toward serving the needs of consumers.  For big businesses, having genuine conflicts of interest with each other smoothed out by government settlement, with costs passed on to customers, is far less “painful” than losing out to more agile and responsive smaller competitors.

Far better information security technology than that used by big business is available and affordable; it’s already in use elsewhere.  Indeed, Nocera quotes security expert Brian Krebs’s observation that an affected business is “always the last to know” when it’s compromised.  However, the financial system set in place by a government with ever-expanding appetites of its own requires a lack of opaqueness which inevitably prevents airtight security. As economist Robert Higgs explains, “once the government has made felonies of a raft of innocent actions … it follows as night follows day that it also treats as suspect every financial transaction you make — after all, any particular transaction might amount to ‘money laundering,’ itself as bogus a crime as any.”

This is doubly so when the federal government’s necessity for large-scale revenue grows to require taxation on sales and income, far beyond that obtainable by a tax on land which, as Henry George observed in Progress and Poverty, “cannot be hidden or carried off.”

Everyday consumer financial security, ensured with the military-grade secrecy used in cryptocurrency, is already technically feasible. Only the government-business alliance prevents market competition from making it economically inevitable.