The Next Crisis: Cyberwarfare

LISTEN TO THE WARNINGS !! There were warnings before 9-11, yet the U.S. was caught off guard by the terrorist attacks. There were warnings before the pandemic, yet Washington stumbled on testing a year ago. And now comes another crisis — cyberwarfare blackmail, quietly raging for years — now aimed this weekend at the Colonial Pipeline.

THE PIPELINE CLOSURE probably won’t last for more than a few days, with relatively modest price hikes, but this comes just as the pandemic bounce-back has produced supply concerns for gasoline and jet fuel. Perhaps more disturbingly, this highlights a lax response to cyberwarfare from Washington.

THIS MORNING’S NEW YORK TIMES describes a modest new Biden Administration regulatory policy, but it looks belated and may not be sufficient to stop future hacks.

WE HAVE WRITTEN RECENTLY about the most visceral of consumer concerns — gasoline prices, which have surged amid reports of shortages of supplies and workers. This latest cybersecurity hack should be a “red alert” for White House, which faces a potentially difficult mid-term election next year.

BUSINESSES, HOSPITALS AND LOCAL GOVERNMENTS have been blackmailed in recent years and most have paid ransom when threatened with the loss of all their computer data. This lucrative enterprise has emboldened criminals, but the response from Washington has been glacial, even as far more sophisticated hacks increase from countries like Russia and China.

ONLY NOW IS A PUSH-BACK COMING — a pending executive order from the U.S. government that apparently will be released in coming weeks. It would create a series of digital safety standards for federal agencies and contractors that develop software for the federal government, such as multifactor authentication, according to the Times.

THE NEW REGULATIONS would require federal agencies to take a “zero trust” approach to software vendors, granting them access to federal systems only when necessary, and would require contractors to certify that they comply with steps to ensure that the software they deliver has not been infected with malware. Companies that fail to comply would not be allowed to sell their products to the federal government.

THIS COULD BE A START, but it’s unclear how much power the government will have to regulate private companies; 85 percent of the country’s infrastructure — including power grids, communications networks and water treatment plants — is controlled by private firms.

EFFORTS IN CONGRESS TO REQUIRE cybersecurity protection have failed frequently, including a bill that stalled in 2012 after industry lobbyists complained that new standards would be too expensive and burdensome. This new crisis probably will jump-start legislative efforts to impose new standards.
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THE LABOR MARKET CONTROVERSY: Like just about everyone, we were stunned by the tepid jobs report last Friday, which instantly became a Rorschach test — with each political party offering radically different assessments of policy going forward.

REPUBLICANS WERE ADAMANT that $300 weekly unemployment benefits are a disincentive for people to return to work, while Democrats said there are other factors, including a lingering fear of Covid and the need for some parents to stay out of the job market to care for their kids because many schools are still locked down.

SOME ANALYSTS SPECULATED THAT there’s a fundamental reassessment of work itself — by people who are not willing to return to low paying service jobs (although we suspect the expiration of unemployment benefits on Sept. 8 could change their thinking).

THE POLICY IMPLICATIONS: With the recovery looking like a bumpy ride, the Federal Reserve now has some breathing room; talk of tapering asset purchases may be pushed back until late this year. From a fiscal standpoint, some Republican governors are moving to end unemployment benefits before Sept. 8.

MEANWHILE, THE LABOR SHORTAGE is likely to persist for several more months, with employers offering sign-up bonuses and higher wages in a desperate effort to add workers. The Big Question, of course, is whether these companies will be able to pass along higher labor costs to their customers; for now, the answer seems to be yes, which will keep inflation fears percolating.

Related: How the Jobs Report Will Change Thinking in Washington

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