Doug Hornig, Senior Editor

Casey Research

Lovers of liberty have seemingly had a good bit to celebrate recently.

First, there was an unprecedented outpouring of negative public sentiment about the Congressional bills SOPA (House) and PIPA (Senate); they are legislation that would have thrown a large governmental monkey wrench into the relatively smooth-running cogs of the Internet. Millions of Americans signed online petitions against the bills after seeing websites’ various protests. Google shrouded its search page in black; Wikipedia and Reddit went dark entirely (although Wikipedia could be accessed if one read the information available via clicking the sole link on its protest page); Facebook and Twitter urged users to contact their representatives; and many other core Internet businesses also raised their voices in opposition.

Such was the outpouring of dissent that even Washington, D.C. had to listen. The bills, which a week earlier had seem assured of swift passage, suddenly turned to poison. Supporters, forced to concede that the public really was pissed off this time, fled. Leadership in both houses tabled the legislation, pending further review and revision. But before we get too self-congratulatory, it’s wise to note that this victory dish is probably best enjoyed with a serving of caution.

As Casey Extraordinary Technology editor Alex Daley summed up the situation for us here at Casey Research: “Be sure this will come back again, likely post-election, and snuck through as part of a bigger package. It arrests power from the judiciary, and the legislature likes nothing more than to thumb its nose at those ridiculous judges and all their due process this and Constitution that. It will eventually pass, just not like this.” We can’t now go to sleep on this one.

Second, the Supreme Court recently ruled 9-0 that police may not attach a GPS tracking device to a suspect’s car without a search warrant. This is a landmark decision to be sure, but one that was carefully circumscribed by the justices. The placing of the device constituted a physical intrusion on the suspect, they wrote, and thus was impermissible. Left unruled upon was the larger question of tracking someone’s movements when there was no physical violation, as would be the case when, say, police access signals from a GPS-enabled smartphone. Though it wasn’t directly addressed, the concurring opinions strongly suggest that the justices might be more sharply divided on that issue.

A lapse of vigilance in these matters would be a mistake.

This is probably a good time to review how individual freedom fared over the past year vis à vis the technology of surveillance in general.

But before I do, I need to make a couple of things clear.

Where We Stand

We are not technophobes at Casey Research. We don’t think that it would be a good thing to retreat to the woods and live out our days spearing game and cooking it over fires. Quite the contrary. We’re technophiles who appreciate what tech has done to improve human living conditions, and we believe that it holds the key to the solution of many, if not all, of our present problems. We like to err on the side of hope.

In addition, we understand that society has a powerful interest in maintaining a certain level of order. It’s intolerable that personal disputes should be settled by gun battles in the streets or that serious infringements on the rights of others – whether it be physical crimes such as robbery, rape, or murder, or non-physical ones like fraud – should be ignored. The most ardent libertarian would generally agree that a government ought to have the authority to prevent or punish the aggression of one individual upon another and to enforce contracts freely entered into. Thus tradeoffs with our basic right to do as we see fit must be made if man’s worst impulses are to be deterred.

That said, the tricky part is deciding where to draw the line between reasonable and overzealous laws and enforcements. Surveillance technology is at the center of this debate. It’s good and getting ever better. Even the most law-abiding of citizens have been subjected to steadily increasing levels of governmental – as well as private sector – watchfulness over their daily lives. That has occurred with no indication that the public is yet prepared to say, “Enough. This is where we draw that line in the sand.”

The past year was no exception. I won’t go into developments I’ve already written about, such as the growth of the TSA’s VIPR operations , last summer’s lemonade-stand busts , the ghastly E-Verify proposal , and the Fed’s Social Listening Program . But the sad truth is that there are plenty more from which to choose. Space considerations permit a close examination of only a few.

It’s a Bird, It’s a Plane, It’s…

… a drone.

Remote-controlled drone aircraft, like the famed Predator, have become a staple of the nightly news. We see them launching missiles against terrorists, conducting spy missions over Pakistan, patrolling the borders looking for drug smugglers and alien infiltrators. Now we’re going to have to get used to seeing them in the skies over, well, all of us.

Yes, those same Predator drones are being used increasingly by local law enforcement in the US.

That was unknown to most Americans before late last year, when the great North Dakota cattle-rustling incident hit the press. It seems that back in June, six neighbors’ cows had the misfortune to wander onto a 3,000-acre farm in eastern North Dakota owned by the Brossart family, whose members allegedly belong to the Sovereign Citizen Movement, an anti-government group that the FBI considers extremist and violent.

When the sheriff attempted to reclaim the cows, the family refused to give them up, ordering him off its property at gunpoint. A 16-hour standoff ensued, with the sheriff requesting the usual reinforcements: state highway patrol, a regional SWAT team, a bomb squad, and deputy sheriffs from three other counties. But he also called nearby Grand Forks Air Force Base and asked for help from a $154 million MQ-9 Predator B drone, normally used to secure the Canadian border for the Department of Homeland Security (DHS).

Long story short, the drone silently surveilled the farm from two miles up, relaying information from its sophisticated sensors as to what the Brossarts were doing. When the surveillance showed that the family members had put their weapons down (yes, it can see that well at that distance), the authorities moved in, neutralizing the Brossarts and making the first known, drone-assisted arrests of US citizens.

Law enforcement was pleased, perhaps rightly so. No blood was spilled. Another Ruby Ridge was avoided. The cows – street value $6,000, but now rather a bit more costly – were recovered.

But that was just the beginning. Local North Dakota police say they have used the Grand Forks Predators to fly at least two dozen surveillance flights since June. The FBI and Drug Enforcement Administration have also used Predators for domestic investigations, officials admit. And Michael Kostelnik, a retired Air Force general who heads the office that supervises the drones, says that Predators are flown “in many areas around the country, not only for federal operators, but also for state and local law enforcement and emergency responders in times of crisis.” [emphasis mine]

Who knew?

Apparently not Congress, for one. Spokespersons for Customs, which owns the drones, claim there is legal authorization for this usage because it was clearly indicated in the purchase request for the Predators that one purpose was “interior law enforcement support.” But those four words sailed right by Congresswoman Jane Harman – Chair of the Homeland Security Subcommittee at the time the drone purchases were approved – who insists that “no one ever discussed using Predators to help local police.” So this expanded civilian use of military surveillance hardware came about with no new law, no public discussion, not even a written regulation… just a few words buried in a budget request that no one in charge of approving it noticed.

There will be mission creep here, as there always is. Expect drones to gather data on any large political demonstration, for example – only, to be fully accurate, you won’t be noticing them above you. They fly too high and are too silent for that.

Internet Surveillance

In addition to SOPA/PIPA, there is PCIP. SOPA/PIPA were about shutting down Internet sites that the federal government deems offensive. PCIP is about gathering information.

As is so often the case with “well-meaning” legislation, the Protecting Children from Internet Pornographers Act of 2011 (H.R. 1981, or PCIP) is allegedly aimed at something about which all agree. Nobody argues against shielding kids from pornographers.

Not that the problem addressed isn’t real. The Internet has proven to be a fertile stalking ground for sexual predators. As a society, we have already agreed to a certain level of cyber-entrapment, allowing police to run online sting operations against those who are actively targeting kids. If that catches some innocent people in the net, so be it. The public majority is willing to accept such collateral damage so long as the real bad guys are found and put away.

And yes, H.R. 1981 also contains some non-controversial provisions. Stricter punishment for interstate commerce transactions that promote child porn? Sure. Bolstering laws to protect child witnesses? No problem.

But, as always, the details are alive with devils. PCIP is also about pre-crimes – i.e., it entails gathering evidence before any crime is committed… perhaps even before said crime is contemplated. The goal is that, in the event of an arrest, supporting online records can quickly and easily be subpoenaed.

In order to accomplish that, everyone must be considered a potential criminal.Everyone.

What PCIP will mandate is that Internet providers keep detailed records about each one of us, including: name, address, bank account numbers, credit card numbers, all Internet activity for the previous 12 months (something sure to be extended after the first successful busts), and any IP addresses assigned to you – without a search warrant, court order, or even the slightest suspicion of criminal activity.

In other words, the government is proposing to expand the ranks of de facto private-sector cops, the same way that banks are now forced to report any “suspicious financial activity.” The legislation would enlist – nay, require – ISPs to compile detailed dossiers on every citizen, and to have them readily accessible for whatever “crime-fighting” or other purposes authorities want them. This thereby saves federal government officials the trouble and expense of doing it themselves. It’s breathtaking. You almost have to admire the elegance of their solution to the universal ‘Net surveillance problem that’s vexed them for some time.

No wonder the Electronic Frontier Foundation has scornfully tabbed this the “Data Retention Bill,” warning that the stored data “could become available to civil litigants in private lawsuits – whether it’s the RIAA trying to identify downloaders, a company trying to uncover and retaliate against an anonymous critic, or a divorce lawyer looking for dirty laundry.” And in a grotesque illustration of the law of unintended consequences, the EFF adds: “These databases would also be a new and valuable target for black hat hackers, be they criminals trying to steal identities or foreign governments trying to unmask anonymous dissidents.”

H.R. 1981 sailed through the House Judiciary Committee in late July of last year but is yet to be voted on (although it was slated for “expedited consideration” in mid-December). Will it provoke the kind of public outcry directed against SOPA? Don’t count on it. What politician in his or her right mind would dare oppose legislation that “protects kids from pornographers?”

Reverse Surveillance

Meaning: when we turn the cameras on the government.

In a sense, we are all now street journalists. Most famously, the name “Rodney King” would mean nothing to anyone today but for a bystander with a cell phone camera. As these devices have become all but ubiquitous, we ordinary citizens now have an unprecedented ability to record crimes in progress, regardless of what side of the law the perpetrators are on.

Or do we?



While police understandably have welcomed citizen recordings that help them with their cases, they are again understandably not so sanguine when they themselves are the potential lawbreakers. And they’re hitting back. People filming unfolding events are routinely ordered away from the scene by the police, even if they happen to be standing on their own private property – and threatened with arrest if they don’t put the camera away.

Considering the First Amendment to the Constitution, that’s been a bluff… at least until recently.

Now authorities are asserting their right to charge video- or audiographers of police events with crimes ranging from obstruction of justice to eavesdropping to illegal wiretapping.

So far, to their credit, the courts have been mostly unsympathetic. In August, a jury acquitted a Chicago woman who used her cell phone to secretly record a conversation with police investigators about a sexual harassment complaint she was filing against the department. Also in August, the US Circuit Court of Appeals in Boston ruled in favor of the defendant in a case involving a complaint filed by a Boston man who filmed the scene of an October 2007 arrest on his cell phone, only to be arrested himself and charged with a violation of Massachusetts wiretapping laws.

In Illinois in September, a judge threw out five eavesdropping indictments – which carried maximum penalties of 15 years in prison on each count – against a man who had recorded conversations with local police officers who he claimed were harassing him on his own property. In a stinging rebuke to the prosecution, the judge wrote, “A statute intended to prevent unwarranted intrusions into a citizen’s privacy cannot be used as a shield for public officials who cannot assert a comparable right of privacy in their public duties. Such action impedes the free flow of information concerning public officials and violates the First Amendment right to gather such information.”

So far, so good. Still, these kinds of busts are on the rise nationwide. Even if they’re all laughed out of court, the mere threat of arrest (and the potential concomitant bodily harm) is often enough to make most people think twice about the wisdom of challenging a police order.

And, truthfully, would you trust the current Supreme Court – a majority of which has consistently supported government rights over that of citizens – to rule correctly on this?

Target: Casey Research!

One of the most ominous developments for us personally crawled out from under its rock in November. Again without any public debate, DHS unleashed its National Operations Center’s Media Monitoring Initiative. Yep, it’s exactly what it sounds like: The NOC’s Office of Operations Coordination and Planning is going to collect information from news anchors, journalists, reporters, or anyone who may use “traditional and/or social media in real time to keep their audience situationally aware and informed.”

Thus Washington, D.C. unilaterally grants itself the right to monitor what you say. Doesn’t matter if you’re the New York Times, Brian Williams, a basement blogger, an online whistleblower, or known government critics like ourselves. They’re gonna take note of your utterances and file them away for future use.

Journalists are not the only targets, by the way. Also included among those subject to this surveillance are government officials (domestic or not) who make public statements; private-sector employees who do the same; and “persons known to have been involved in major crimes of Homeland Security interest,” however large that umbrella might be.

At Casey Research, we’re not about to engage in self-censorship just because some bureaucrat somewhere has nothing better to do than watch what we’re saying. They’re welcome to it, and we’ll save them the trouble of archiving it; most of it’s preserved on our website, anyway.

The larger speculation is: what’s the endgame here?

Data Storage Capacity

Back in 1997, I wrote an article entitled Here’s Looking at You, which examined the ways in which big government was encroaching upon our private lives. The piece was published in February 1998 in a very popular national men’s magazine. (In my defense, I hasten to add that these glossy periodicals were among the very few public outlets, before Casey Research was born, for journalists who wrote about such “fringe” topics.)

As I was writing this piece you are now reading, I couldn’t help but take a look back fourteen years. It seems almost like a prehistoric era… before 9/11, the PATRIOT Act, wars in Iraq and Afghanistan, drones, “free-speech zones” at political conventions, wall-penetrating radar, iPhones, and wholesale government monitoring of email and phone conversations, among a zillion other things. Heck, even the Internet was still more or less a novelty: I found that I had cautioned readers to be mindful of an insidious newfangled thing called “cookies.”

The tech of today is light-years more advanced. But even back then, I was concerned. And I predicted where I saw the trend heading. Naturally enough, not all of my predictions came to pass – I was certain for instance that by now we’d have a national ID card – but unfortunately, most of them did.

The reason I bring this up here is not to tout myself as particularly prescient. It’s to note something of actual importance. In 1998, I could still maintain that our saving grace was that data-storage capabilities were way insufficient for the total surveillance of hundreds of millions of Americans and probably would be for a long time to come.

How wrong I was.

It is already technologically feasible for governments to record nearly everything that is said or done within their borders – every phone conversation, electronic message, social media interaction, the movements of nearly every person and vehicle, and video from every street corner.

Before long, it’ll also be financially feasible to archive it, according to a sobering report published last December by the Brookings Center for Technology Innovation.

The report concludes that: “Plummeting digital storage costs will soon make it possible for authoritarian regimes to not only monitor known dissidents, but to also store the complete set of digital data associated with everyone within their borders. These enormous databases of captured information will create what amounts to a surveillance time machine, enabling state security services to retroactively eavesdrop on people in the months and years before they were designated as surveillance targets. This will fundamentally change the dynamics of dissent, insurgency and revolution.”

Emphasis mine. Consider the implications.

The key, according to the Brookings report: “Over the past three decades, [data] storage costs have declined by a factor of 10 approximately every 4 years, reducing the per-gigabyte cost from approximately $85,000 (in 2011 dollars) in mid-1984 to about five cents today.” Using GPS, mobile phone and WiFi inputs, “identifying the location of each of one million people to [a 15-foot] accuracy at 5-minute intervals, 24 hours a day for a full year could easily be stored in 1,000 gigabytes, which would cost slightly over $50 at today’s prices.” Fourteen cents a day to archive the collective movements of any selected million of us.

Phone calls? “The audio for all of the telephone calls made by a single person over the course of one year could be stored using roughly 3.3 gigabytes. On a per capita basis, the cost to store all phone calls will fall from about 17 cents per person per year today to under 2 cents in 2015.”

Video storage takes far more space, of course, and there are also major logistical problems involved in managing such a huge amount of data. But the point is made. Technological innovation will provide the tools. And as soon as government can do something, they invariably will do it.

Investing

These few examples, winnowed from hundreds of others I could cite, testify to a mushrooming new industry in the US, what some have called the cyber-industrial complex.

It’s big business. How big we don’t know, because much of it is shrouded in either government or corporate secrecy. The Washington Post‘s Dana Priest, twice a Pulitzer winner and one of the few true investigative journalists in America still working inside the mainstream media, published some groundbreaking work on the subject in the summer of 2010. If you haven’t read it already, you should.

The website is dynamic, with regular updates posted on the subject and reader input invited.

Several other recent probes also have opened the shadowy surveillance world to a little more light. You can check out some of the latest techniques and which companies are implementing them at The Surveillance Catalog published by the Wall Street Journal and The State of Surveillance: The Data , published by the Bureau of Investigative Journalism.

Perhaps in your browsing you’ll find some publicly traded companies that will attract your investment interest. For our part, at Casey Research we prefer to seek out companies that are engaged in changing our world for the better rather than the worse. Those are the ones you’ll find in our portfolio.

In the end, we must acknowledge that technological advancement, especially at the rate we’re experiencing it in the present era, is bound to spawn evil applications along with the good. But we’re optimists here. We believe humanity is in a long-term uptrend, with technology setting torches on the path to a better life.

But that all depends on keeping people free. That’s why we will continue to expose – and oppose – government efforts to stifle innovation, creativity, and personal liberty. I’m not holding my breath but perhaps eventually Washington, D.C. will get the point, and follow our lead.

[Technology wars are being waged in a variety of ways, but the one that may affect investors the most is the war for the best talent. You have to invest smart to be on the winning side of this battle; learn how to back the victors and reap outsized profits.]