Intercontinental Grid Computing: Europe and China Link Up for Research
ScienceDaily (Jan. 15, 2010) — Grid computing can jet-propel research and development. An EU-funded programme that lets European and Chinese grids work together has already produced results in aircraft design, drug development and weather prediction.
In 2007, the EU-funded project, BRIDGE (for Bilateral Research and Industrial development enhancing and integrating Grid Enabled technologies -- see: http://www.bridge-grid.eu/), set out to link European and Chinese computing grids and enable researchers to carry out joint research.
The project was inspired by the realisation that China is rapidly becoming a world leader in research and development, as well as a booming market for European products. Developing the infrastructure to link computing grids was seen as a key step towards future scientific and industrial cooperation.
"If Europe does not want to lose ground, the response can only be to synchronise with these developments," says Gilbert Kalb, BRIDGE project coordinator.
Building a shared infrastructure
The BRIDGE team's first challenge was to make the software systems that manage the European and Chinese grids compatible. The European Grid infrastructure, GRIA, and the Chinese system, CNGrid GOS, provide comparable services, but are organised differently.
The team were able to get GRIA and GOS to work together by building a new software superstructure to access them and tap their capabilities. The system included new gateways into the two grids, plus a shared platform to manage overall workflow, access needed applications, and translate higher-level commands into steps that each grid could carry out.
Not surprisingly, security was an important consideration on both sides. Kalb says that many or the scientific and industrial problems that BRIDGE was developed to address require intensive cooperation, yet involve highly sensitive information.
BRIDGE resolved this issue by letting selected processes remain private. That allows one group to contribute data or results to all collaborating parties without having to share proprietary software or analytic tools.
"You can interface in terms of the input and the output, while the algorithms remain hidden," says Kalb.
Putting BRIDGE to work
The BRIDGE team tested the intercontinental grid they built by attacking three problems, each of which made different demands on the system.
Discovering new drugs remains an extremely costly process. One way to speed research is to use computers to simulate the chemical fit between millions of small molecules and proteins that play vital roles in disease-causing organisms. A molecule that binds strongly to a key protein has the potential to be turned into a potent new drug. This kind of research demands enormous computing power.
Researchers in Europe and China contributed four different docking tools -- programs that calculate bonding between a small molecule and a particular protein. Each program used a different approach and produced somewhat different results.
The researchers then examined millions of molecules to see if they held promise against malaria or the H5N1 bird flu virus. By combining the results of the four different simulations, they were able to identify promising molecules more efficiently.
"Making the outcomes of these different docking tools comparable is very new," says Kalb.
The four-pronged approach produced promising results. The BRIDGE infrastructure has already been adopted in Egypt to target the malaria parasite.
BRIDGE was also used to solve a complex aeronautic problem -- designing and positioning wing flaps to maximise lift and minimise noise as an aircraft lands.
Like drug-discovery, these aerodynamic simulations required huge computational resources. In addition, because different parts of each simulation took place in different research centres, optimising the flow of work from centre to centre was also challenging.
The BRIDGE team was able to meet these challenges, carry out intensive distributed computations, and determine optimal wing flap parameters. "It proved to be an effective method for solving multi-objective and multi-disciplinary optimisation in aircraft design," Kalb says.
Weather data on the fly
Weather and climate represent a third area where international cooperation is vital. The BRIDGE researchers set out to link three large meteorological databases located in Europe, North America and Asia.
The key challenge they faced with this project was to handle enormous volumes of data efficiently.
"You could do a calculation in the United States and transfer the results to Europe, or you could fetch the data from the USA and do the calculations here," says Kalb. "The best way to do it depends on what calculation and what data and what's the best available way to transfer the data from place to place. Bridge does all this on the fly."
"Because there was a big organisation behind it, and our work fits very well, it was taken up right away," says Kalb. "I believe that meteorologists are already using it to access data and perform certain calculations."
To Kalb, the importance of what BRIDGE accomplished goes far beyond any single piece of research. He feels that the project has built the foundation for the kind of multinational collaboration that is needed to tackle global problems.
"Problems like energy and climate change can only be attacked or really solved with efforts from different players around the world, and we've built a platform to do that," he says. We proved that this is feasible and useful. Now it's time for other people to jump on this, develop it further, and use it."
The BRIDGE project received funding from the Sixth Framework Programme for research.
Saturday, January 16, 2010
Science and Engineering Indicators 2010
Science and Engineering Indicators 2010
ScienceDaily (Jan. 15, 2010) — The state of the science and engineering (S&E) enterprise in America is strong, yet its lead is slipping, according to data released at the White House January 15 by the National Science Board (NSB). Prepared biennially and delivered to the President and Congress on even numbered years by Jan. 15 as statutorily mandated, Science and Engineering Indicators (SEI) provides information on the scope, quality and vitality of America's science and engineering enterprise. SEI 2010 sheds light on America's position in the global economy.
"The data begin to tell a worrisome story," said Kei Koizumi, assistant director for federal research and development (R&D)in the President's Office of Science and Technology Policy (OSTP). Calling SEI 2010 a "State of the Union on science, technology, engineering and mathematics," he noted that quot;U.S. dominance has eroded significantly."
Koizumi and OSTP hosted the public rollout at which NSB Chairman Steven Beering, National Science Foundation (NSF) Director Arden L. Bement, Jr., and NSB members presented SEI 2010 data and described a mixed picture. NSB's SEI Committee Chairman Lou Lanzerotti noted the good news for those in the S&E community about public attitudes, "Scientists are about the same as firefighters in terms of prestige," he said. His presentation focused attention on NSB's Digest, also released January 15, highlighting important trends and data points from across SEI 2010.
Over the past decade, R&D intensity--how much of a country's economic activity or gross domestic product is expended on R&D--has grown considerably in Asia, while remaining steady in the U.S. Annual growth of R&D expenditures in the U.S. averaged 5 to 6 percent while in Asia, it has skyrocketed. In some Asian countries, R&D growth rate is two, three, even four, times that of the U.S.
In terms of R&D expenditures as a share of economic output, while Japan has surpassed the U.S. for quite some time, South Korea is now in the lead--ahead of the U.S. and Japan. And why does this matter? Investment in R&D is a major driver of innovation, which builds on new knowledge and technologies, contributes to national competitiveness and furthers social welfare. R&D expenditures indicate the priority given to advancing science and technology (S&T) relative to other national goals.
NSB SEI 2010 Committee Member Jose-Marie Griffiths discussed another key indicator: intellectual research outputs. "While the U.S. continues to lead the world in research publications, China has become the second most prolific contributor." China's rapidly developing science base now produces 8 percent of the world's research publications, up from its just 2 percent of the world's share in 1995, when it ranked 14th.
Patents are another measure of valuable contributions to knowledge and inventions to societies. Inventors from around the globe seek patent protection in the U.S. U.S. patents awarded to foreign inventors offer a broad indication of the distribution of inventive activity around the world. While inventors in the U.S., the European Union (EU) and Japan produce almost all of these patents, and U.S. patenting by Chinese and Indian inventors remains modest, the number of patents earned by Asian inventors is on the rise, driven by activity in Taiwan and South Korea.
The Digest contains these and other key indicators, such as the globalization of capability; funding, performance and portfolio of U.S. R&D trends; and the composition of the U.S. S&E workforce. What's more, the Digest is electronically linked with detailed data tables and discussions in the main volumes of SEI. It can also be downloaded to laptops, iPods or other devices. "This makes the data much more accessible and digestable to policymakers, as well as to members of the general public who may wish to read about and understand the data that describe the state of their economy," said Lanzerotti.
Calling SEI a "biennial production and a daily source of pride for NSF," Bement characterized it as a guide to the future. "It is not just where we stand; it's about where we're heading," he said, quoting 19th century British scientist Lord Kelvin, "'If you cannot measure it, you cannot improve it.'"
Representing OSTP Director John Holdren and his OSTP colleagues, in closing Koizumi said, "We promise to put your work to good use."
SEI is prepared by NSF's Division of Science Resources Statistics (SRS) on behalf of the National Science Board. The publication is subject to extensive review by outside experts, interested federal agencies, Board members and SRS internal reviewers for accuracy, coverage and balance.
In further carrying out its responsibility to advise the President and Congress on science and engineering issues, in February, the NSB will release a companion, policy piece, Globalization of Science and Engineering Research.
ScienceDaily (Jan. 15, 2010) — The state of the science and engineering (S&E) enterprise in America is strong, yet its lead is slipping, according to data released at the White House January 15 by the National Science Board (NSB). Prepared biennially and delivered to the President and Congress on even numbered years by Jan. 15 as statutorily mandated, Science and Engineering Indicators (SEI) provides information on the scope, quality and vitality of America's science and engineering enterprise. SEI 2010 sheds light on America's position in the global economy.
"The data begin to tell a worrisome story," said Kei Koizumi, assistant director for federal research and development (R&D)in the President's Office of Science and Technology Policy (OSTP). Calling SEI 2010 a "State of the Union on science, technology, engineering and mathematics," he noted that quot;U.S. dominance has eroded significantly."
Koizumi and OSTP hosted the public rollout at which NSB Chairman Steven Beering, National Science Foundation (NSF) Director Arden L. Bement, Jr., and NSB members presented SEI 2010 data and described a mixed picture. NSB's SEI Committee Chairman Lou Lanzerotti noted the good news for those in the S&E community about public attitudes, "Scientists are about the same as firefighters in terms of prestige," he said. His presentation focused attention on NSB's Digest, also released January 15, highlighting important trends and data points from across SEI 2010.
Over the past decade, R&D intensity--how much of a country's economic activity or gross domestic product is expended on R&D--has grown considerably in Asia, while remaining steady in the U.S. Annual growth of R&D expenditures in the U.S. averaged 5 to 6 percent while in Asia, it has skyrocketed. In some Asian countries, R&D growth rate is two, three, even four, times that of the U.S.
In terms of R&D expenditures as a share of economic output, while Japan has surpassed the U.S. for quite some time, South Korea is now in the lead--ahead of the U.S. and Japan. And why does this matter? Investment in R&D is a major driver of innovation, which builds on new knowledge and technologies, contributes to national competitiveness and furthers social welfare. R&D expenditures indicate the priority given to advancing science and technology (S&T) relative to other national goals.
NSB SEI 2010 Committee Member Jose-Marie Griffiths discussed another key indicator: intellectual research outputs. "While the U.S. continues to lead the world in research publications, China has become the second most prolific contributor." China's rapidly developing science base now produces 8 percent of the world's research publications, up from its just 2 percent of the world's share in 1995, when it ranked 14th.
Patents are another measure of valuable contributions to knowledge and inventions to societies. Inventors from around the globe seek patent protection in the U.S. U.S. patents awarded to foreign inventors offer a broad indication of the distribution of inventive activity around the world. While inventors in the U.S., the European Union (EU) and Japan produce almost all of these patents, and U.S. patenting by Chinese and Indian inventors remains modest, the number of patents earned by Asian inventors is on the rise, driven by activity in Taiwan and South Korea.
The Digest contains these and other key indicators, such as the globalization of capability; funding, performance and portfolio of U.S. R&D trends; and the composition of the U.S. S&E workforce. What's more, the Digest is electronically linked with detailed data tables and discussions in the main volumes of SEI. It can also be downloaded to laptops, iPods or other devices. "This makes the data much more accessible and digestable to policymakers, as well as to members of the general public who may wish to read about and understand the data that describe the state of their economy," said Lanzerotti.
Calling SEI a "biennial production and a daily source of pride for NSF," Bement characterized it as a guide to the future. "It is not just where we stand; it's about where we're heading," he said, quoting 19th century British scientist Lord Kelvin, "'If you cannot measure it, you cannot improve it.'"
Representing OSTP Director John Holdren and his OSTP colleagues, in closing Koizumi said, "We promise to put your work to good use."
SEI is prepared by NSF's Division of Science Resources Statistics (SRS) on behalf of the National Science Board. The publication is subject to extensive review by outside experts, interested federal agencies, Board members and SRS internal reviewers for accuracy, coverage and balance.
In further carrying out its responsibility to advise the President and Congress on science and engineering issues, in February, the NSB will release a companion, policy piece, Globalization of Science and Engineering Research.
Will China rule the world?
Will China rule the world?
By Dani Rodrik
First Published: January 13, 2010
CAMBRIDGE – Thirty years ago, China had a tiny footprint on the global economy and little influence outside its borders, save for a few countries with which it had close political and military relationships. Today, the country is a remarkable economic power: the world’s manufacturing workshop, its foremost financier, a leading investor across the globe from Africa to Latin America, and, increasingly, a major source of research and development.
The Chinese government sits atop an astonishing level of foreign reserves – greater than $2 trillion. There is not a single business anywhere in the world that has not felt China’s impact, either as a low-cost supplier, or more threateningly, as a formidable competitor.
China is still a poor country. Although average incomes have risen very rapidly in recent decades, they still stand at between one-seventh and one-eighth the levels in the United States – lower than in Turkey or Colombia and not much higher than in El Salvador or Egypt. While coastal China and its major metropolises evince tremendous wealth, large swaths of Western China remain mired in poverty. Nevertheless, China’s economy is projected to surpass that of the US in size sometime in the next two decades.
Meanwhile, the US, the world’s sole economic hyper-power until recently, remains a diminished giant. It stands humbled by its foreign-policy blunders and a massive financial crisis. Its credibility after the disastrous invasion of Iraq is at an all-time low, notwithstanding the global sympathy for President Barack Obama, and its economic model is in tatters. The once-almighty dollar totters at the mercy of China and the oil-rich states.
All of which raises the question of whether China will eventually replace the US as the world’s hegemon, the global economy’s rule setter and enforcer. In a fascinating new book, revealingly titled When China Rules the World , the British scholar and journalist Martin Jacques is unequivocal: if you think China will be integrated smoothly into a liberal, capitalist, and democratic world system, Jacques argues, you are in for a big surprise. Not only is China the next economic superpower, but the world order that it will construct will look very different from what we have had under American leadership.
Americans and Europeans blithely assume that China will become more like them as its economy develops and its population gets richer. This is a mirage, Jacques says. The Chinese and their government are wedded to a different conception of society and polity: community-based rather than individualist, state-centric rather than liberal, authoritarian rather than democratic. China has 2,000 years of history as a distinct civilization from which to draw strength. It will not simply fold under Western values and institutions.
A world order centered on China will reflect Chinese values rather than Western ones, Jacques argues. Beijing will overshadow New York, the renminbi will replace the dollar, Mandarin will take over from English, and schoolchildren around the world will learn about Zheng He’s voyages of discovery along the Eastern coast of Africa rather than about Vasco de Gama or Christopher Columbus.
Gone will be the evangelism of markets and democracy. China is much less likely to interfere in the internal affairs of sovereign states. But, in return, it will demand that smaller, less powerful states explicitly recognize China’s primacy (just as in the tributary systems of old).
Before any of this comes to pass, however, China will have to continue its rapid economic growth and maintain its social cohesion and political unity. None of this is guaranteed. Beneath China’s powerful economic dynamo lie deep tensions, inequalities, and cleavages that could well derail a smooth progression to global hegemony. Throughout its long history, centrifugal forces have often pushed the country into disarray and disintegration.
China’s stability hinges critically on its government’s ability to deliver steady economic gains to the vast majority of the population. China is the only country in the world where anything less than 8% growth year after year is believed to be dangerous because it would unleash social unrest. Most of the rest of the world only dreams about growth at that rate, which speaks volumes about the underlying fragility of the Chinese system.
The authoritarian nature of the political regime is at the core of this fragility. It allows only repression when the government faces protests and opposition outside the established channels.
The trouble is that it will become increasingly difficult for China to maintain the kind of growth that it has experienced in recent years. China’s growth currently relies on an undervalued currency and a huge trade surplus. This is unsustainable, and sooner or later it will precipitate a major confrontation with the US (and Europe). There are no easy ways out of this dilemma. China will likely have to settle for lower growth.
If China surmounts these hurdles and does eventually become the world’s predominant economic power, globalization will, indeed, take on Chinese characteristics. Democracy and human rights will then likely lose their luster as global norms. That is the bad news.
The good news is that a Chinese global order will display greater respect for national sovereignty and more tolerance for national diversity. There will be greater room for experimentation with different economic models.
Dani Rodrik, Professor of Political Economy at Harvard University’s John F. Kennedy School of Government, is the first recipient of the Social Science Research Council’s Albert O. Hirschman Prize. His latest book is One Economics, Many Recipes: Globalization, Institutions, and Economic Growth.
This commentary is publioshed by DAILY NEWS EGYPT in collaboration with Project Syndicate (www.project-syndicate.org).
By Dani Rodrik
First Published: January 13, 2010
CAMBRIDGE – Thirty years ago, China had a tiny footprint on the global economy and little influence outside its borders, save for a few countries with which it had close political and military relationships. Today, the country is a remarkable economic power: the world’s manufacturing workshop, its foremost financier, a leading investor across the globe from Africa to Latin America, and, increasingly, a major source of research and development.
The Chinese government sits atop an astonishing level of foreign reserves – greater than $2 trillion. There is not a single business anywhere in the world that has not felt China’s impact, either as a low-cost supplier, or more threateningly, as a formidable competitor.
China is still a poor country. Although average incomes have risen very rapidly in recent decades, they still stand at between one-seventh and one-eighth the levels in the United States – lower than in Turkey or Colombia and not much higher than in El Salvador or Egypt. While coastal China and its major metropolises evince tremendous wealth, large swaths of Western China remain mired in poverty. Nevertheless, China’s economy is projected to surpass that of the US in size sometime in the next two decades.
Meanwhile, the US, the world’s sole economic hyper-power until recently, remains a diminished giant. It stands humbled by its foreign-policy blunders and a massive financial crisis. Its credibility after the disastrous invasion of Iraq is at an all-time low, notwithstanding the global sympathy for President Barack Obama, and its economic model is in tatters. The once-almighty dollar totters at the mercy of China and the oil-rich states.
All of which raises the question of whether China will eventually replace the US as the world’s hegemon, the global economy’s rule setter and enforcer. In a fascinating new book, revealingly titled When China Rules the World , the British scholar and journalist Martin Jacques is unequivocal: if you think China will be integrated smoothly into a liberal, capitalist, and democratic world system, Jacques argues, you are in for a big surprise. Not only is China the next economic superpower, but the world order that it will construct will look very different from what we have had under American leadership.
Americans and Europeans blithely assume that China will become more like them as its economy develops and its population gets richer. This is a mirage, Jacques says. The Chinese and their government are wedded to a different conception of society and polity: community-based rather than individualist, state-centric rather than liberal, authoritarian rather than democratic. China has 2,000 years of history as a distinct civilization from which to draw strength. It will not simply fold under Western values and institutions.
A world order centered on China will reflect Chinese values rather than Western ones, Jacques argues. Beijing will overshadow New York, the renminbi will replace the dollar, Mandarin will take over from English, and schoolchildren around the world will learn about Zheng He’s voyages of discovery along the Eastern coast of Africa rather than about Vasco de Gama or Christopher Columbus.
Gone will be the evangelism of markets and democracy. China is much less likely to interfere in the internal affairs of sovereign states. But, in return, it will demand that smaller, less powerful states explicitly recognize China’s primacy (just as in the tributary systems of old).
Before any of this comes to pass, however, China will have to continue its rapid economic growth and maintain its social cohesion and political unity. None of this is guaranteed. Beneath China’s powerful economic dynamo lie deep tensions, inequalities, and cleavages that could well derail a smooth progression to global hegemony. Throughout its long history, centrifugal forces have often pushed the country into disarray and disintegration.
China’s stability hinges critically on its government’s ability to deliver steady economic gains to the vast majority of the population. China is the only country in the world where anything less than 8% growth year after year is believed to be dangerous because it would unleash social unrest. Most of the rest of the world only dreams about growth at that rate, which speaks volumes about the underlying fragility of the Chinese system.
The authoritarian nature of the political regime is at the core of this fragility. It allows only repression when the government faces protests and opposition outside the established channels.
The trouble is that it will become increasingly difficult for China to maintain the kind of growth that it has experienced in recent years. China’s growth currently relies on an undervalued currency and a huge trade surplus. This is unsustainable, and sooner or later it will precipitate a major confrontation with the US (and Europe). There are no easy ways out of this dilemma. China will likely have to settle for lower growth.
If China surmounts these hurdles and does eventually become the world’s predominant economic power, globalization will, indeed, take on Chinese characteristics. Democracy and human rights will then likely lose their luster as global norms. That is the bad news.
The good news is that a Chinese global order will display greater respect for national sovereignty and more tolerance for national diversity. There will be greater room for experimentation with different economic models.
Dani Rodrik, Professor of Political Economy at Harvard University’s John F. Kennedy School of Government, is the first recipient of the Social Science Research Council’s Albert O. Hirschman Prize. His latest book is One Economics, Many Recipes: Globalization, Institutions, and Economic Growth.
This commentary is publioshed by DAILY NEWS EGYPT in collaboration with Project Syndicate (www.project-syndicate.org).
Google banned 30,000 advertisers post Economic Resurrection, Ad police suddenly affordable
Google banned 30,000 advertisers post Economic Resurrection
Ad police suddenly affordable
By Cade Metz in San Francisco • Get more from this author
Posted in Music and Media, 15th January 2010 21:40 GMT
In the fall of 2008, when the worldwide economy began to melt, Google responded by shamelessly expanding ad coverage on its web-dominating search engine, letting more ads onto more pages. But now that the economy has recovered, the web giant has suddenly become more much vigilant in its efforts to weed out what it considers low-quality advertising.
According to new data from AdGooRoo - a search marketing consultant that tracks search ads from a network of servers across the globe - Google permanently banned 30,000 accounts from its AdWords ad system at the beginning of December. That's roughly 5.3 per cent of its active advertisers. Ad coverage dipped nearly 10 per cent in the wake of the mass axing, and yet AdGooRoo's data indicates that Google's revenues surged in the fourth quarter, thanks to increased competition for placement among the web's top ad spenders.
Click here to find out more!
In other words, when the economy was in the tank, Google needed all the extra revenue it could get. But now that the economy is healthy again, it can step up efforts up to remove what it sees as inappropriate ads. The big boys are spending more, so it doesn't need as many clicks to boost the bottom line. What's more, by shrinking ad coverage, Google can actually drive more traffic to the big spenders. If you cut 30,000 advertisers, those still on the search engine get more clicks - and the more clicks, the more those big spenders pay.
Google announces its fourth quarter financials next week, and AdGooRoo data is typically a reliable indicator of what's to come. "Our ad coverage metric confirms that something big went down at the Googleplex last month. Ad coverage, which has been steadily climbing for the past 12 months took a sudden and precipitous dive in December," reads the firms latest search-ad report, due out on Monday. "Ordinarily, this would foreshadow a weak quarter, but we believe that this small drop will be more than offset by strong ad revenues."
Two years ago, in January 2008, Google famously began an effort to shrink ad coverage on the world's most popular search engine. This continued through the middle of 2008, and when the subject came up during Google's quarterly earnings call that July, senior vice president Jonathan Rosenberg attributed the shrinkage to Google's "continued focus on quality" advertising.
"[Google co-founder] Larry [Page] says we'd be better off showing just one ad [per page] - the perfect ad," Rosenberg said, indicating that coverage would continue to shrink.
But then he was interrupted by Google's other co-founder, Sergey Brin, who piped up with what can only be described as a shocking moment of candor. "There is some evidence that we've been a little bit more aggressive in decreasing coverage than we ought to have been," Brin said. "We've been reexamining some of that."
The economy was softening, and sure enough, coverage soon began to expand. According to AdGooRoo's numbers, Google's search engine showed 57 per cent more ads per page in the fourth quarter of 2008 than it did in Q3, as the economy imploded following the infamous demise of Wall Street stalwarts Lehman Brothers and Merrill Lynch.
Google had made significant changes to AdWords that fall, and naturally it said this would also improve ad "quality." So, whether Google is shrinking ad coverage or expanding it, the only aim to provide the world with better ads.
But surely it's obvious that Google is dialing up and down as the economy rises and falls. And now that the economy is on the rise again, the company has renewed efforts to crack down on ads it doesn't like. Google started banning advertisers en masse in early October - just as it was about to announce that the economic meltdown was over - and this house-cleaning came to head on December 3.
The official line is what you'd expect from the Mountain View Chocolate Factory. "Google is constantly working to ensure that we’re showing ads to our users that are relevant, in accordance with our ad policies, and safe for users. To that end, we perform regular reviews, using both manual and automated processes, in order to detect and disable ads that violate our policies," it told Search Engine Land.
But surely, the timing is no coincidence. ®
Ad police suddenly affordable
By Cade Metz in San Francisco • Get more from this author
Posted in Music and Media, 15th January 2010 21:40 GMT
In the fall of 2008, when the worldwide economy began to melt, Google responded by shamelessly expanding ad coverage on its web-dominating search engine, letting more ads onto more pages. But now that the economy has recovered, the web giant has suddenly become more much vigilant in its efforts to weed out what it considers low-quality advertising.
According to new data from AdGooRoo - a search marketing consultant that tracks search ads from a network of servers across the globe - Google permanently banned 30,000 accounts from its AdWords ad system at the beginning of December. That's roughly 5.3 per cent of its active advertisers. Ad coverage dipped nearly 10 per cent in the wake of the mass axing, and yet AdGooRoo's data indicates that Google's revenues surged in the fourth quarter, thanks to increased competition for placement among the web's top ad spenders.
Click here to find out more!
In other words, when the economy was in the tank, Google needed all the extra revenue it could get. But now that the economy is healthy again, it can step up efforts up to remove what it sees as inappropriate ads. The big boys are spending more, so it doesn't need as many clicks to boost the bottom line. What's more, by shrinking ad coverage, Google can actually drive more traffic to the big spenders. If you cut 30,000 advertisers, those still on the search engine get more clicks - and the more clicks, the more those big spenders pay.
Google announces its fourth quarter financials next week, and AdGooRoo data is typically a reliable indicator of what's to come. "Our ad coverage metric confirms that something big went down at the Googleplex last month. Ad coverage, which has been steadily climbing for the past 12 months took a sudden and precipitous dive in December," reads the firms latest search-ad report, due out on Monday. "Ordinarily, this would foreshadow a weak quarter, but we believe that this small drop will be more than offset by strong ad revenues."
Two years ago, in January 2008, Google famously began an effort to shrink ad coverage on the world's most popular search engine. This continued through the middle of 2008, and when the subject came up during Google's quarterly earnings call that July, senior vice president Jonathan Rosenberg attributed the shrinkage to Google's "continued focus on quality" advertising.
"[Google co-founder] Larry [Page] says we'd be better off showing just one ad [per page] - the perfect ad," Rosenberg said, indicating that coverage would continue to shrink.
But then he was interrupted by Google's other co-founder, Sergey Brin, who piped up with what can only be described as a shocking moment of candor. "There is some evidence that we've been a little bit more aggressive in decreasing coverage than we ought to have been," Brin said. "We've been reexamining some of that."
The economy was softening, and sure enough, coverage soon began to expand. According to AdGooRoo's numbers, Google's search engine showed 57 per cent more ads per page in the fourth quarter of 2008 than it did in Q3, as the economy imploded following the infamous demise of Wall Street stalwarts Lehman Brothers and Merrill Lynch.
Google had made significant changes to AdWords that fall, and naturally it said this would also improve ad "quality." So, whether Google is shrinking ad coverage or expanding it, the only aim to provide the world with better ads.
But surely it's obvious that Google is dialing up and down as the economy rises and falls. And now that the economy is on the rise again, the company has renewed efforts to crack down on ads it doesn't like. Google started banning advertisers en masse in early October - just as it was about to announce that the economic meltdown was over - and this house-cleaning came to head on December 3.
The official line is what you'd expect from the Mountain View Chocolate Factory. "Google is constantly working to ensure that we’re showing ads to our users that are relevant, in accordance with our ad policies, and safe for users. To that end, we perform regular reviews, using both manual and automated processes, in order to detect and disable ads that violate our policies," it told Search Engine Land.
But surely, the timing is no coincidence. ®
Thursday, January 14, 2010
Challenging China
Chinese surprise at Google pull-out threat
By Chris Hogg
BBC News, Shanghai
Google's warning that it might pull out of China over cyber attacks has surprised human rights activists here.
They seem unfazed that China is accused of trying to hack into their Gmail accounts. But a major foreign firm like Google being prepared to speak out and challenge the government so directly is unusual.
The Chinese authorities will be infuriated that Google has made its announcement before negotiations with officials have got under way.
China has so far said little publicly in response.
I would bet on a harsh reaction from the Chinese government
Dan Sefarty, Viadeo
An unnamed official quoted by the state news agency Xinhua said only that the authorities were trying to find out more about Google's suggestion it might leave the country.
The company's main Chinese rival Baidu is less reticent. In a blog post that has since been taken down, the firm's chief architect Sun Yunfeng claimed Google was just trying to play down its market failure.
"Would Google top executives still proclaim that they would 'do no evil'," he said, quoting the company's code of conduct, "and quit China if they had taken 80% of China's search market?"
Google's market share is estimated to be around 30% in China, about half the size of Baidu's, the search engine market leader.
The senior Baidu executive said the American company's move would "satisfy the imagination of those Westerners who have never been to China and understand nothing of China but still like to point fingers at China".
'Mismatch' in perception
Others in the technology sector here see this differently.
google.cn homepage ( archive image)
Gmail accounts of rights activists have reportedly been accessed
Dan Sefarty heads Viadeo, the firm that owns the Chinese social networking site Tianji.com.
"Google is rare," he says. "It's a US company succeeding in China. It has impressive market share and is atypical among other foreign companies who try to get into this very tough market."
He warns that Baidu has strong links with the government and may be lobbying hard to gain business advantage from this row.
"I would bet on a harsh reaction from the Chinese government," he says. "Look at what they have done with Facebook and Twitter, which have been blocked in China for six to nine months now."
Opinion is divided over whether or not Google really plans to withdraw from the country, the world's largest internet market.
Duncan Clark, an analyst at the Beijing hi-tech consultancy BDA, says he sees a "mismatch" in perception between the Chinese authorities and the foreign firms doing business here.
"People here think no-one can do without China, and I think now some companies are thinking no-one can deal with China," he told the French news agency AFP.
"There is a feeling that China is emboldened and that they don't need to have the same sort of dialogue [as before]," he said.
Google's senior US executives are well aware of the Chinese preference for gradual change, and also of the authorities' likely resistance on a matter of such ideological importance to them as control of the internet, an arena described by a senior public security official just a few weeks ago as a "battlefield".
Some analysts see Google's announcement as a gambit for what will be extremely tough negotiations with the Chinese, rather than an ultimatum.
But others suggest that the more Google bent towards the demands of the Chinese government, the more harm was done to its reputation overseas, and at some point it had to make a stand.
'Heroic' decision?
Whether you regard Google's market share as impressive or disappointing, compared to its dominance elsewhere, there is little doubt it is not a household name in China in the same way that it is abroad.
A Chinese flag flutters outside Google's China headquarters in Beijing
Google has about 700 staff in its China offices
But Hu Li, a student in Beijing, told the BBC he admired what he called the company's "heroic" decision to offer an unfiltered service, and hailed the announcement to pull out if it could not reach its objective.
Some people even laid flowers outside the company's Beijing headquarters, in the hi-tech Haidian district, as a mark of respect.
But this sentiment was certainly not shared by everyone.
Another man, an IT worker who would only give his surname, Zhong, said the American firm should respect China's situation regarding this kind of issue.
"China has been using censorship for a long time," he said. "Any change can only happen slowly - it won't happen overnight."
By Chris Hogg
BBC News, Shanghai
Google's warning that it might pull out of China over cyber attacks has surprised human rights activists here.
They seem unfazed that China is accused of trying to hack into their Gmail accounts. But a major foreign firm like Google being prepared to speak out and challenge the government so directly is unusual.
The Chinese authorities will be infuriated that Google has made its announcement before negotiations with officials have got under way.
China has so far said little publicly in response.
I would bet on a harsh reaction from the Chinese government
Dan Sefarty, Viadeo
An unnamed official quoted by the state news agency Xinhua said only that the authorities were trying to find out more about Google's suggestion it might leave the country.
The company's main Chinese rival Baidu is less reticent. In a blog post that has since been taken down, the firm's chief architect Sun Yunfeng claimed Google was just trying to play down its market failure.
"Would Google top executives still proclaim that they would 'do no evil'," he said, quoting the company's code of conduct, "and quit China if they had taken 80% of China's search market?"
Google's market share is estimated to be around 30% in China, about half the size of Baidu's, the search engine market leader.
The senior Baidu executive said the American company's move would "satisfy the imagination of those Westerners who have never been to China and understand nothing of China but still like to point fingers at China".
'Mismatch' in perception
Others in the technology sector here see this differently.
google.cn homepage ( archive image)
Gmail accounts of rights activists have reportedly been accessed
Dan Sefarty heads Viadeo, the firm that owns the Chinese social networking site Tianji.com.
"Google is rare," he says. "It's a US company succeeding in China. It has impressive market share and is atypical among other foreign companies who try to get into this very tough market."
He warns that Baidu has strong links with the government and may be lobbying hard to gain business advantage from this row.
"I would bet on a harsh reaction from the Chinese government," he says. "Look at what they have done with Facebook and Twitter, which have been blocked in China for six to nine months now."
Opinion is divided over whether or not Google really plans to withdraw from the country, the world's largest internet market.
Duncan Clark, an analyst at the Beijing hi-tech consultancy BDA, says he sees a "mismatch" in perception between the Chinese authorities and the foreign firms doing business here.
"People here think no-one can do without China, and I think now some companies are thinking no-one can deal with China," he told the French news agency AFP.
"There is a feeling that China is emboldened and that they don't need to have the same sort of dialogue [as before]," he said.
Google's senior US executives are well aware of the Chinese preference for gradual change, and also of the authorities' likely resistance on a matter of such ideological importance to them as control of the internet, an arena described by a senior public security official just a few weeks ago as a "battlefield".
Some analysts see Google's announcement as a gambit for what will be extremely tough negotiations with the Chinese, rather than an ultimatum.
But others suggest that the more Google bent towards the demands of the Chinese government, the more harm was done to its reputation overseas, and at some point it had to make a stand.
'Heroic' decision?
Whether you regard Google's market share as impressive or disappointing, compared to its dominance elsewhere, there is little doubt it is not a household name in China in the same way that it is abroad.
A Chinese flag flutters outside Google's China headquarters in Beijing
Google has about 700 staff in its China offices
But Hu Li, a student in Beijing, told the BBC he admired what he called the company's "heroic" decision to offer an unfiltered service, and hailed the announcement to pull out if it could not reach its objective.
Some people even laid flowers outside the company's Beijing headquarters, in the hi-tech Haidian district, as a mark of respect.
But this sentiment was certainly not shared by everyone.
Another man, an IT worker who would only give his surname, Zhong, said the American firm should respect China's situation regarding this kind of issue.
"China has been using censorship for a long time," he said. "Any change can only happen slowly - it won't happen overnight."
Yahoo sides with Google over China cyber attack
Yahoo sides with Google over China cyber attack
By Hibah Yousuf, staff reporterJanuary 13, 2010: 1:35 PM ET
NEW YORK (CNNMoney.com) -- Yahoo Inc. gave its support to rival Google Inc. Wednesday, denouncing an alleged cyber attack originating in China against Google's network infrastructure.
"We condemn any attempts to infiltrate company networks to obtain user information," a Yahoo representative said in an e-mail statement. "We stand aligned with Google that these kinds of attacks are deeply disturbing and strongly believe that the violation of user privacy is something that we as Internet pioneers must all oppose."
Google said late Tuesday that the attack's primary goal was to access Gmail accounts of Chinese human rights activists. The company said that the incident, as well as Chinese censorship rules, could force it to shut down its operations in China, which includes Google.cn.
The search giant's ongoing investigation suggests the attack targeted at least twenty other large companies from a variety of industries. Neither Yahoo (YHOO, Fortune 500) nor Google (GOOG, Fortune 500) revealed whether Yahoo was among the victims.
"Yahoo does not generally disclose that type of information, but we take security very seriously and we take appropriate action in the event of any kind of breach," Yahoo said.
Microsoft (MSFT, Fortune 500), which launched a Chinese version of its search engine Bing in June, said that the company has "no indication that any of our mail properties have been compromised."
0:00 /3:04Yahoo eyes Chinese expansion
In 2005, Yahoo sold its business in China to Alibaba.com, China's largest e-commerce company. Yahoo maintains a 39% financial stake in the company but Yahoo no longer has "operational control or day-to-day management over the Yahoo! China business," according to a Yahoo spokeswoman.
Google did not have any response to Yahoo's statement.
By Hibah Yousuf, staff reporterJanuary 13, 2010: 1:35 PM ET
NEW YORK (CNNMoney.com) -- Yahoo Inc. gave its support to rival Google Inc. Wednesday, denouncing an alleged cyber attack originating in China against Google's network infrastructure.
"We condemn any attempts to infiltrate company networks to obtain user information," a Yahoo representative said in an e-mail statement. "We stand aligned with Google that these kinds of attacks are deeply disturbing and strongly believe that the violation of user privacy is something that we as Internet pioneers must all oppose."
Google said late Tuesday that the attack's primary goal was to access Gmail accounts of Chinese human rights activists. The company said that the incident, as well as Chinese censorship rules, could force it to shut down its operations in China, which includes Google.cn.
The search giant's ongoing investigation suggests the attack targeted at least twenty other large companies from a variety of industries. Neither Yahoo (YHOO, Fortune 500) nor Google (GOOG, Fortune 500) revealed whether Yahoo was among the victims.
"Yahoo does not generally disclose that type of information, but we take security very seriously and we take appropriate action in the event of any kind of breach," Yahoo said.
Microsoft (MSFT, Fortune 500), which launched a Chinese version of its search engine Bing in June, said that the company has "no indication that any of our mail properties have been compromised."
0:00 /3:04Yahoo eyes Chinese expansion
In 2005, Yahoo sold its business in China to Alibaba.com, China's largest e-commerce company. Yahoo maintains a 39% financial stake in the company but Yahoo no longer has "operational control or day-to-day management over the Yahoo! China business," according to a Yahoo spokeswoman.
Google did not have any response to Yahoo's statement.
Google Turns on Gmail Encryption to Protect Wi-Fi Users
Google Turns on Gmail Encryption to Protect Wi-Fi Users
google_logoGoogle is now encrypting all Gmail traffic from its servers to its users in a bid to foil sniffers who sit in cafes, eavesdropping in on traffic passing by, the company announced Wednesday.
The change comes just a day after the company announced it might pull its offices from China after discovering concerted attempts to break into Gmail accounts of human rights activists. The switch to always-on HTTPS adds more security, but does not help prevent the kind of attacks Google announced Tuesday.
All Gmail users will now default to using HTTPS, the secure, encrypted method for communicating with a remote server, for their entire e-mail sessions, not just for log-in. Session-long HTTPS has been an official option for Gmail users since 2008 (and unofficial for much longer), but Google says it hesitated turning it on for all since the encryption does slow down the service.
“Over the last few months, we’ve been researching the security/latency tradeoff and decided that turning https on for everyone was the right thing to do,” Gmail Engineering Director Sam Schillace wrote in the Gmail blog.
This option often wasn’t necessary when people used fixed and trusted connections, such as their home or office DSL or cable lines. But as Wi-Fi connections, especially public ones, became more popular, hackers began using simple sniffing software to snoop on people’s online activities with the goal of stealing passwords.
Still, the switch doesn’t encrypt e-mail — it simply encrypts the communications in transit between Google’s servers and a user’s computer — the same as when you use your bank’s website. E-mails sent to other people are transmitted in the clear as they have always been. True encrypted e-mail can only be read by the sender and receiver, regardless of how they move across the internet.
For those whose schools or workplaces routinely monitor employee or student internet usage, the change also shields their e-mails from the IT department.
A coalition of privacy and security experts called on Google publicly to make the change last June, saying that Google was putting millions of people at risk by not using encryption as the default for their cloud computing services.
Users who find the service slows them down or determine that it’s overkill for their needs can turn the HTTPS off in their account settings.
Rival free e-mail from Yahoo and Microsoft do not use HTTPS throughout their sessions, nor do social networking sites or other so-called cloud-computing services.
Instead, most of those services use the secure HTTPS protocol only for logging in, and fall back to unencrypted browsing thereafter. Failing to use HTTPS full-time increases one’s vulnerability to a host of nasty hack attacks when using an open or badly secured network, particularly a public Wi-Fi spot.
google_logoGoogle is now encrypting all Gmail traffic from its servers to its users in a bid to foil sniffers who sit in cafes, eavesdropping in on traffic passing by, the company announced Wednesday.
The change comes just a day after the company announced it might pull its offices from China after discovering concerted attempts to break into Gmail accounts of human rights activists. The switch to always-on HTTPS adds more security, but does not help prevent the kind of attacks Google announced Tuesday.
All Gmail users will now default to using HTTPS, the secure, encrypted method for communicating with a remote server, for their entire e-mail sessions, not just for log-in. Session-long HTTPS has been an official option for Gmail users since 2008 (and unofficial for much longer), but Google says it hesitated turning it on for all since the encryption does slow down the service.
“Over the last few months, we’ve been researching the security/latency tradeoff and decided that turning https on for everyone was the right thing to do,” Gmail Engineering Director Sam Schillace wrote in the Gmail blog.
This option often wasn’t necessary when people used fixed and trusted connections, such as their home or office DSL or cable lines. But as Wi-Fi connections, especially public ones, became more popular, hackers began using simple sniffing software to snoop on people’s online activities with the goal of stealing passwords.
Still, the switch doesn’t encrypt e-mail — it simply encrypts the communications in transit between Google’s servers and a user’s computer — the same as when you use your bank’s website. E-mails sent to other people are transmitted in the clear as they have always been. True encrypted e-mail can only be read by the sender and receiver, regardless of how they move across the internet.
For those whose schools or workplaces routinely monitor employee or student internet usage, the change also shields their e-mails from the IT department.
A coalition of privacy and security experts called on Google publicly to make the change last June, saying that Google was putting millions of people at risk by not using encryption as the default for their cloud computing services.
Users who find the service slows them down or determine that it’s overkill for their needs can turn the HTTPS off in their account settings.
Rival free e-mail from Yahoo and Microsoft do not use HTTPS throughout their sessions, nor do social networking sites or other so-called cloud-computing services.
Instead, most of those services use the secure HTTPS protocol only for logging in, and fall back to unencrypted browsing thereafter. Failing to use HTTPS full-time increases one’s vulnerability to a host of nasty hack attacks when using an open or badly secured network, particularly a public Wi-Fi spot.
Wednesday, January 13, 2010
America's Financial Illiteracy
America's Financial Illiteracy
Thomas F. Cooley, 01.13.10, 12:01 AM EST
Protecting consumers in the confusing world of modern finance.
One of the common elements of the regulatory reform proposals being crafted by the House and Senate is that both propose to create a Consumer Financial Protection Agency (CFPA). Although there has been concerted opposition to the creation of a new bureaucracy, there is certainly some logic to the idea of consolidating existing consumer protection functions in one agency. Currently, responsibility for consumer protection is scattered across several existing regulatory bodies, and as a consequence the task has fallen between the cracks. Authority for enforcement is in the hands of at least 11 agencies. Each one has responsibility for only a subgroup of financial firms, and their mandates partly conflict. Among the agencies, the Federal Trade Commission (FTC) is unique in having consumer protection on the list of its primary mandates.
There can be no doubt that many consumers have been battered by bad decisions that they made about mortgages, credit card debt, auto loans and so on. And there is no doubt that some of these bad decisions were driven by unscrupulous business practices and that alarms should have been raised about certain lending practices that drove the increase in household leverage.
Our recent experience raises a legitimate and interesting question--what exactly is the role of the government in protecting people from their own bad decisions? It is important to bear in mind that for 30 years we have been in the midst of a major social transformation in which responsibility for risk management has shifted to individuals. In the past, the government and employers often made financial decisions for households, for example by providing health insurance, defined benefit retirement plans and social security; now households are on their own more than ever. We can't just shrug off the problem because if many individuals make bad financial decisions, it creates a negative externality.
Many of the most important decisions consumers make in their lifetimes involve financial products: a mortgage to purchase a home, a loan to purchase an automobile, credit to make a large durable purchase, investments for retirement and insurance to keep one's family secure. All of these financial products have become increasingly complex over time and there is a much wider range of product options offered by different providers, making decision-making more complicated. Consumers need to be financially literate in order to make well-informed choices about such complex products. A growing body of evidence suggests that many consumers lack the knowledge they need to evaluate and make decisions about financial instruments.
So, what should we do and how should the CFPA address this? We don't want a CFPA that limits innovation in financial products--it shouldn't be modeled after the FDA, which requires that products be safe and effective before being allowed into the marketplace. We certainly want the CFPA to monitor abusive practices and raise warnings when they occur. Although as I noted in an earlier column, lobbyists have been hard at work limiting the impact of the CFPA. One result is that House bill H.R. 3126 exempts all of the following entities from regulation by the CFPA: automobile dealers who provide financing; any person regulated by the Securities and Exchange Commission; any person regulated by a state insurance regulator; smaller banks and credit unions (those with $10 billion or less in assets); brokers and agents for mortgage, title and credit insurance; real estate brokers and agents; attorneys; and most retailers. The Senate proposal has fewer carve-outs but does exclude from CFPA regulation small banks and credit unions, merchants, retailers and other nonfinancial institutions that extend credit to consumers.
That suggests that the most important role for a CFPA may be to increase the public's financial literacy. The level of financial knowledge among U.S. households is shockingly low, and that fact is at odds with the trend of shifting risk management to households.
How bad is it? Two economists, Annamaria Lusardi and Olivia Mitchell, have been studying financial literacy and the effectiveness of efforts to promote it for many years. The results are not at all encouraging. To take just a few of their examples, they asked the following questions of a representative sample of Americans over the age of fifty:
1. Suppose you had $100 in a savings account and the interest rate was 2% per year. After five years how much do you think you would have in the account if you left the money to grow: more than $102, exactly $102, less than $102?
2. Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After one year would you be able to buy more than, exactly the same as or less than today with the money in this account?
3. Do you think that the following statement is true or false? "Buying a single company stock usually provides a safer return than a stock mutual fund."
Only 50% of respondents were able to answer the first two questions correctly and less than a third were able to answer all three. In a related study less than 18% of people surveyed were able to answer a simple two-period compound interest problem. This is pretty discouraging. Not surprisingly the extent of financial illiteracy differs with education, gender, race and age. Most efforts to improve financial literacy are not effective.
So what is to be done? One view is that we can improve welfare through the judicious choice of "default" options. For example, in the choice of mortgages or consumer credit plans, the default option could require financial service providers to include a "plain vanilla" product in their menu. This offering should be easy to understand even for the inexperienced customer. It would also serve as a point of reference in comparison to other products. Default options have to be prudently chosen, since consumers, especially those who are inexperienced, are likely to refrain from active choices.
There are a lot of unanswered questions about default options. Sweden, Mexico and Chile have accumulated experience with the use of default investment portfolios in retirement plans. So far the evidence suggests that the choice of default option can have a tremendous effect on retirement savings, but not always to good effect.
Clearly the best way to protect consumers is to educate them. As a society we don't seem to have figured out how to do that. It's time we did.
Thomas F. Cooley, the Paganelli-Bull professor of economics and the former dean of the NYU Stern School of Business, writes a weekly column for Forbes.
Thomas F. Cooley, 01.13.10, 12:01 AM EST
Protecting consumers in the confusing world of modern finance.
One of the common elements of the regulatory reform proposals being crafted by the House and Senate is that both propose to create a Consumer Financial Protection Agency (CFPA). Although there has been concerted opposition to the creation of a new bureaucracy, there is certainly some logic to the idea of consolidating existing consumer protection functions in one agency. Currently, responsibility for consumer protection is scattered across several existing regulatory bodies, and as a consequence the task has fallen between the cracks. Authority for enforcement is in the hands of at least 11 agencies. Each one has responsibility for only a subgroup of financial firms, and their mandates partly conflict. Among the agencies, the Federal Trade Commission (FTC) is unique in having consumer protection on the list of its primary mandates.
There can be no doubt that many consumers have been battered by bad decisions that they made about mortgages, credit card debt, auto loans and so on. And there is no doubt that some of these bad decisions were driven by unscrupulous business practices and that alarms should have been raised about certain lending practices that drove the increase in household leverage.
Our recent experience raises a legitimate and interesting question--what exactly is the role of the government in protecting people from their own bad decisions? It is important to bear in mind that for 30 years we have been in the midst of a major social transformation in which responsibility for risk management has shifted to individuals. In the past, the government and employers often made financial decisions for households, for example by providing health insurance, defined benefit retirement plans and social security; now households are on their own more than ever. We can't just shrug off the problem because if many individuals make bad financial decisions, it creates a negative externality.
Many of the most important decisions consumers make in their lifetimes involve financial products: a mortgage to purchase a home, a loan to purchase an automobile, credit to make a large durable purchase, investments for retirement and insurance to keep one's family secure. All of these financial products have become increasingly complex over time and there is a much wider range of product options offered by different providers, making decision-making more complicated. Consumers need to be financially literate in order to make well-informed choices about such complex products. A growing body of evidence suggests that many consumers lack the knowledge they need to evaluate and make decisions about financial instruments.
So, what should we do and how should the CFPA address this? We don't want a CFPA that limits innovation in financial products--it shouldn't be modeled after the FDA, which requires that products be safe and effective before being allowed into the marketplace. We certainly want the CFPA to monitor abusive practices and raise warnings when they occur. Although as I noted in an earlier column, lobbyists have been hard at work limiting the impact of the CFPA. One result is that House bill H.R. 3126 exempts all of the following entities from regulation by the CFPA: automobile dealers who provide financing; any person regulated by the Securities and Exchange Commission; any person regulated by a state insurance regulator; smaller banks and credit unions (those with $10 billion or less in assets); brokers and agents for mortgage, title and credit insurance; real estate brokers and agents; attorneys; and most retailers. The Senate proposal has fewer carve-outs but does exclude from CFPA regulation small banks and credit unions, merchants, retailers and other nonfinancial institutions that extend credit to consumers.
That suggests that the most important role for a CFPA may be to increase the public's financial literacy. The level of financial knowledge among U.S. households is shockingly low, and that fact is at odds with the trend of shifting risk management to households.
How bad is it? Two economists, Annamaria Lusardi and Olivia Mitchell, have been studying financial literacy and the effectiveness of efforts to promote it for many years. The results are not at all encouraging. To take just a few of their examples, they asked the following questions of a representative sample of Americans over the age of fifty:
1. Suppose you had $100 in a savings account and the interest rate was 2% per year. After five years how much do you think you would have in the account if you left the money to grow: more than $102, exactly $102, less than $102?
2. Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After one year would you be able to buy more than, exactly the same as or less than today with the money in this account?
3. Do you think that the following statement is true or false? "Buying a single company stock usually provides a safer return than a stock mutual fund."
Only 50% of respondents were able to answer the first two questions correctly and less than a third were able to answer all three. In a related study less than 18% of people surveyed were able to answer a simple two-period compound interest problem. This is pretty discouraging. Not surprisingly the extent of financial illiteracy differs with education, gender, race and age. Most efforts to improve financial literacy are not effective.
So what is to be done? One view is that we can improve welfare through the judicious choice of "default" options. For example, in the choice of mortgages or consumer credit plans, the default option could require financial service providers to include a "plain vanilla" product in their menu. This offering should be easy to understand even for the inexperienced customer. It would also serve as a point of reference in comparison to other products. Default options have to be prudently chosen, since consumers, especially those who are inexperienced, are likely to refrain from active choices.
There are a lot of unanswered questions about default options. Sweden, Mexico and Chile have accumulated experience with the use of default investment portfolios in retirement plans. So far the evidence suggests that the choice of default option can have a tremendous effect on retirement savings, but not always to good effect.
Clearly the best way to protect consumers is to educate them. As a society we don't seem to have figured out how to do that. It's time we did.
Thomas F. Cooley, the Paganelli-Bull professor of economics and the former dean of the NYU Stern School of Business, writes a weekly column for Forbes.
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