Monday, January 22, 2018

Disability Rolls Tumble As Economy Gains Steam

It's a miracle!
Then the eyes of the blind shall be opened, and the ears of the deaf shall be unstopped.
Then shall the lame man leap as an hart, and the tongue of the dumb sing: for in the wilderness shall waters break out, and streams in the desert.
From Investor's Business Daily, January 19:
Jobs: If you want a sign of a growing economy, look at the disability rolls. They've been shrinking rapidly of late, as fewer apply for benefits and more disabled return to work. This is very good news.

In the aftermath of the last recession, the number of workers who went on the Social Security Disability Insurance program skyrocketed by more than 1 million.

It's clear from the data that this was being driven largely by the lack of good job prospects. Monthly applications for SSDI leapt from an average 182,000 a month in 2007 to 245,000 a month in 2010. Even years after the recession had ended, applications remained well above 200,000 a month as the painfully slow recovery dragged on.

With jobs scarce and enrollment requirements for SSDI fairly lax, it's not surprising that many took this route.

While these trends started to slowly turn around in 2015, they accelerated in 2017.
In fact, the number of SSDI applications in 2017 was down 6% from the year before — the biggest one-year decline since 1997, government data show. At the same time, the number of people leaving the program was higher in 2017 than it's been in more than a decade.

As a result, the number of workers collecting federal disability benefits dropped 1.3% last year, which is the biggest annual decline since 1983....MORE
Take that Lourdes.

Okay, dispensing with the sarcasm there are two things to note:

1) many of the people receiving Social Security Disability Income were not disabled in the old fashioned sense. They were instead using SSDI as a safety net after unemployment compensation ran out.
Many (most) of that group definitely suffered emotional problems which were serious enough to qualify for the program.
And then there were the fraudsters. For some reason there is a fraud belt that extends from Arkansas on the Mississippi across Kentucky to Virginia on the Atlantic and down down through the Carolinas into the Deep South.
Here's one of the bigger prosecutions via the DOJ: "Social Security Disability Lawyer Pleads Guilty For Role in $550 Million Social Security Fraud Scheme".

2) What this means in a macro sense is the pool of potential workers is larger than it might first appear.
If there are jobs available, a majority of folks on SSDI will opt for work at around $8.00 per hour. The average payment SSDI payment is $1171 ($6.92/hr) but there are disincentives that make the cost/benefit breakeven higher than the mathematical breakeven.

Remember, the people we're talking about may be troubled but they aren't crazy.

So, more people in the invisible labor pool means one more pressure keeping wages down.

Previously:
"Unfit for Work: The startling rise of disability in America"

Geographic Areas to Short When the Debt Bomb Goes Off
 
Jobless Disability Claims soar to record $200B as of January"

The Nasty Truth About Wages in America

"TrimTabs on Debt and Disability Claims: How Much Debt Does it Take to Generate $1 in GDP? Disability Fraud vs. Expiring Unemployment Benefits Revisited"

The Real Problem With Social Security Disability: The DI Trust Fund Will Be Exhausted in Four Years

Phi Scamma Jamma: More People Went on Disability Last Month Than Got Jobs

Schrödinger's Disability or One More Reason the Social Security Disability Fund Will Run Out by 2016

See also Political Calculations' "Enabling Disability Fraud"

For what it's worth, the attorney at the center of the fraud in the DoJ release fled the country.
But didn't flee far enough.
From WKYT-TV, Dec. 4, 2017:
Eric C. Conn back in Kentucky after being captured in Honduras

When Volatility Is Suppressed

From Albert Wenger's Continuations blog, Dec. 20, 2017:
This will be the last Uncertainty Wednesday for 2017 as I am about to go away on vacation. In the last post I had introduced the idea that sometimes when volatility is suppressed it comes back to bite us. I wanted to have a really simple model for demonstrating that and so I wrote some Python code to make a 50:50 coin toss and depending on the result either increment or decrement a value by +/- 2 (I set the initial value to 100). Here is a plot of a sample run:
image
Now to suppress volatility, I modified the program so that it would increment or decrement the value by +/- 1 instead, i.e. half the original change. I then added the suppressed +/- 1 (the other half of the change) into a “buffer” – accumulating +1 in a positive buffer and -1 in a negative buffer. I then gave each buffer a 1 in 1,000 chance of being released. Here is a plot where the buffer is not released:
image
We can immediately see that there is less volatility. In fact, when we determine the sample variance, the sample in the first chart comes in at 178 whereas the sample in the second chart has a variance of only 42.
Here by contrast is a plot from a run where the negative buffer gets released.
image
We can see that once again the chart starts out looking as if it has rather low volatility. But then all of a sudden all the suppressed down movements are being realized in one go and the value drops dramatically....MORE
Oh dear.

Speaking of seeing past misdirection (post immediately below), Mr. Wenger's January 17th 2018 Uncertainty Wednesday' post contains a simple sentence with profound implications:
"...For any fat tailed distribution, the sample variance will underestimate the true variance. Mistaking the sample variance for the actual variance is the same error as mistaking the sample mean for the actual mean...."
Here's Contiuations' homepage.

Quote du Jour: The Importance of Seeing Past the Magician's Misdirection Move Edition

On the tech giants:
“These businesses have not redefined industries in a fundamental way; instead they are ‘old wines in new bottles’…and should be regulated accordingly.”
From the HBR
Many online platform businesses, such as Uber and Airbnb, have so far had a pretty easy ride when it comes to regulation. Your Airbnb host probably doesn’t have to worry about city fire-code inspections, for example, and it’s up to you, informed only by the driver review on the app, to decide whether you think the Uber vehicle you are about to step into is safe and road-worthy.
So far, the theory behind this laissez-fair regulatory approach — which many in Silicon Valley are happy to endorse — is that platform companies define new markets for which regulators were not prepared, and as such can’t be regulated in the same way as legacy companies. We believe, however, that these businesses have not redefined industries in a fundamental way; instead they are “old wines in new bottles.” They have more similarities than differences with traditional businesses, and should be regulated accordingly.

First, we should agree on a definition of a new market: in our view, it is commerce that brings together products and services with customers in a transaction that did not previously exist. A historical example of this is the introduction of cell phones, which created a fundamentally new market because consumers could connect with each other in ways that were just impossible with land lines. As a result, regulations influenced mainstream cell phone use differently depending on the country. In the UK, handsets and service plans were sold separately, giving rise to a whole new market of retailers and encouraging open competition among handset manufacturers. In contrast, in the U.S., regulators linked handsets to service plans, resulting in a telco-owned market and largely absent of any handset competition for years (until a certain smart phone came along)....MORE
HT: 13D Research, who writes:
Uber is a taxi company. AirBnB is a hotel company. Facebook and Google are media companies. Enforcing these classifications would strip tech giants of competitive advantages increasingly seen as unfair to incumbents. It could also eliminate many of the offshore tax practices that have enabled tech giant cash hoarding. The concern is how this would impact consumer benefits and freedoms, from the information they share to their ability to monetize assets like cars and homes.... 

Foreign Exchange: "Dollar Remains Heavy"

From Marc to Market:
The US dollar closed last week on a firm note, but it has been unable to build on its gains to start the new week. News that Germany's SPD agreed to enter formal negotiations with Merkel's CDU/CSU alliance saw the euro open in Asia around a half a cent higher. However, sellers emerged near $1.2275 but seemed to lose their nerve as the pre-weekend low near $1.2215 was approached. It requires a break of $1.2165 to be of technical importance. On the upside, the market may be reluctant to extend gains much above $1.2300 ahead of the ECB meeting later this week.

The US government shutdown enters its third session. Half of the government shutdowns since 1977 have lasted three days or less. It is mostly about political theater and less about principles. It is a peculiar expression of the US presidential system and the idiosyncratic fiscal process. The direct economic impact of is thought to be minor, but of course, the more protracted the shutdown, the more disruptive. The next step may be a procedural vote in the Senate near midday.

One impact of the government shutdown may be on the US economic data schedule. Fortunately, the week begins off with private sector data reports. However, reports later in the week, including the advanced look at durable goods orders and Q4 GDP could be postponed. For the record, the Atlanta Fed's GDP tracker is looking at a 3.4% annualized paced, spurred by a 4% rise in real consumption. The New York Fed sees a 3.9% pace.

Korean shares reacted to the MSCI warning about the capital gains changes being contemplated. The KOSPI and the KOSDAQ shed around 0.75% and bucked the regional advance. The MSCI Asia Pacific Index rose 0.15%. The Korean won is the weakest of the emerging market currencies with a 0.4% loss. Foreign investors were net sellers of Korean shares for the second consecutive session. The Taiwanese dollar briefly touched new five-year highs.

The South African rand is the strongest of the emerging market currencies, gaining 1% against the US dollar and coming close to ZAR12.00. The ostensible impetus came from the ANC pressure on Zuma to step down. On the other hand, Turkey's decision to pursue a ground offensive against US-support Kurds in Syria has spurred some modest lira losses (~0.20%)...

...MORE

BP: Peak Oil (Demand)

From BP:

Peak oil demand and long-run oil prices
The point at which oil demand will peak has long been a focus of debate. BP chief economist Spencer Dale and Bassam Fattouh, director of The Oxford Institute for Energy Studies, argue that this focus seems misplaced. The significance of peak oil is that it signals a shift from an age of perceived scarcity to an age of abundance – and with it, a likely shift to a more competitive market environment
Global oil markets are changing dramatically.

The advent of electric vehicles and the growing pressures to decarbonise the transportation sector means that oil is facing significant competition for the first time within its core source of demand. This has led to considerable focus within the industry and amongst commentators on the prospects for peak oil demand – the recognition that the combined forces of improving efficiency and building pressure to reduce carbon emissions and improve urban air quality is likely to cause oil demand to stop increasing after over 150 years of almost uninterrupted growth.

At the same time, the supply side of the oil market is experiencing its own revolution. The advent of US tight oil has fundamentally altered the behaviour of oil markets, introducing a new and flexible source of competitive oil. More generally, the application of new technologies, especially digitalisation in all its various guises, has the potential to unlock huge new reserves of oil over the next 20 to 30 years.

The prospect of peak oil demand, combined with increasingly plentiful supplies of oil, has led many commentators to conclude that oil prices are likely to decline inextricably over time. If the demand for oil is drying up and the world is awash with oil, why should oil prices be significantly higher than the cost of extracting the marginal barrel? The days of rationing and scarcity premiums must surely be numbered?

These developments are important. Growth in oil demand is likely to slow gradually and eventually peak. And plentiful supplies of oil are likely to alter fundamentally the behaviour of oil producing economies.
However, this paper argues the current focus on the changing nature of the oil market is largely misplaced.
Much of the popular debate is centred around when oil demand is likely to peak. A cottage industry of oil executives and industry experts has developed trading guesses of when oil demand will peak: 2025, 2035, 2040?1 This focus on dating the peak in oil demand seems misguided for at least two reasons.

First, no one knows: the range of uncertainty is huge. Small changes in assumptions about the myriad factors determining oil demand, such as GDP growth or the rate of improvement in vehicle efficiency, can generate very different paths.

Second, and more importantly, this focus on the expected timing of the peak attaches significance to this point as if once oil stops growing it is likely to trigger a sharp discontinuity in behaviour: oil consumption will start declining dramatically or investment in new oil production will come to an abrupt halt. But this seems very unlikely. Even after oil demand has peaked, the world is likely to consume substantial quantities of oil for many years to come. The comparative advantages of oil as an energy source, particularly its energy density when used in the transport system, means it is unlikely to be materially displaced for many decades. And the natural decline in existing oil production means that significant amounts of investment in new oil production is likely to be required for the foreseeable future.

The date at which oil demand is likely to peak is highly uncertain and not particularly interesting.
Rather, the importance of ‘peak oil demand’ is that it signals a break from the paradigm that has dominated oil markets over the past few decades.

In the past, any mention of peak oil would have been interpreted as a reference to peak oil ‘supply’: the belief that there was a limited supply of oil and that as oil became increasing scarce, its price would tend to rise. This basic belief has had an important influence on oil markets since the 1970s and before. Oil producing countries rationed their oil supplies safe in the belief that if they didn’t produce a barrel of oil today they could produce it tomorrow, potentially at a higher price. Oil companies spent huge sums of money exploring and securing oil resources that were expected to become increasingly harder and more expensive to find.

Peak oil demand signals a break from a past dominated by concerns about adequacy of supply. A shift in paradigm: from an age of scarcity (or, more accurately, ‘perceived’ scarcity) to an age of abundance, with potentially profound implications for global oil markets as they become increasingly competitive, and for major oil producing countries as they reform and adjust their economies for an age in which they can no longer rely on oil revenues for the indefinite future.

One key implication of this paradigm shift is its impact on long-run price trends. The move to oil abundance is indeed likely to herald a more competitive market environment. But the assumption that oil prices will be determined simply by the cost of extracting the marginal barrel of oil risks ignoring an important aspect of global oil production. Many of the world’s major oil producing economies, with some of the largest proven reserves, rely very heavily on oil revenues to finance other aspects of their economies. The current structure of these economies would be unsustainable if oil prices were set close to the cost of extraction. Many oil producers would be forced to run large and persistent fiscal deficits or to cut back sharply on social provisions, which, in turn, would likely have knock on implications for global oil production and prices.

The argument is not that large oil producers cannot change the structure of their economies: the age of abundance means that structural reform to reduce oil dependency is more important than ever2. But history has shown that economic reform and diversification can be a long and challenging process. As such, the pace and extent of that reform process is likely to have an important bearing on oil prices over the next 20 or 30 years. It is not enough simply to consider the marginal cost of extraction, developments in these “social costs” of production are also likely to have an important bearing on oil prices over the foreseeable future.

The rest of the paper is structured as follows. The next section considers the outlook for oil demand and notes that under many alternative scenarios the world is likely to need significant amounts of oil for the foreseeable future. Section 3 examines the challenges posed by this shift in oil paradigm – from scarcity to abundance – for major oil producing economies and how they might respond; while Section 4 discusses the determination of longer-run oil prices in an age of abundance. Section 5 concludes.
 
Section 2: Peak oil demand The broad consensus amongst energy commentators and forecasters is that global oil demand is likely to continue growing for a period, driven by rising prosperity in fast-growing developing economies. But that pace of growth is likely to slow overtime and eventually plateau, as efficiency improvements accelerate and a combination of technology advances, policy measures and changing social preferences lead to an increasing penetration of other fuels in the transportation sector. Some projections show oil demand peaking during the period they consider, others beyond their forecast horizons.
The aim of this section is not to propose a particular path for oil demand or to argue that one projection is more plausible than another. Rather it is simply to highlight two points:
  1. the point at which oil demand is likely to peak is very uncertain and depends on many assumptions;
  2. even once oil demand has peaked, consumption is unlikely to fall very sharply – the world is likely to consume significant amounts of oil for many years to come.
Chart 1 shows a range of forecast for oil demand over the next 25-30 years from a variety of public and private sector organisations.
Chart 1 – World oil demand (Mb/d)
peak-oil-chart-1-world-oil-demand-bp.png
There is wide range of estimates of the point at which oil demand is likely to peak. Some projections suggest global oil demand could peak soon after 2025, others expect demand to continue to grow out to 2040 and beyond. Indeed, different projections from the same organisation can point to quite different estimates depending on the assumptions used. For example, the IEA’s Sustainable Development scenario, which is predicated on a sharp tightening in climate policies, suggests oil demand may peak in the mid-2020s, whereas its “New Policies” scenario, which envisages a less sharp break in environmental policies, points to demand continuing to grow in 2040. A comparison of BP’s “Even Faster Transition” case with its base case points to a similar difference3. BP’s Energy Outlook also highlights how relatively small differences in assumptions about GDP growth or improvements in vehicle efficiency can radically shift the likely timing of the peak in demand.
The point here is that any estimate of when oil demand will peak is highly dependent on the assumptions underpinning it: slight differences in those assumptions can lead to very different estimates. Beware soothsayers who profess to know when oil demand will peak.

Chart 1 also illustrates that even those projections that predict oil demand will peak during their forecast period, do not envisage a sharp drop off in demand. The vast majority of the projections in Chart 1 expect the level of oil demand in 2035 or 2040 to be greater than it is today. Even those projections which suggest that oil demand may peak relatively early, such as the IEA Sustainable Development scenario, do not see a very sharp drop off in oil demand. The Sustainable Development scenario considers a scenario in which climate policies tighten sufficiently aggressively for carbon emissions to decline at a rate thought to be broadly consistent with achieving the goals set out at the Paris COP21 meetings. But even if this case, global oil demand is projected to be above 80 Mb/d in 2040, compared with 95 Mb/d today....
...MUCH MORE

HT: ZH

On the other side of the equation we had Peak Oil (supply) and Hubbert's curve, it was in all the papers (for the younger people, some day I'll explain what papers were) until July 2008 or so.

By 2012 our headlines were along the lines of:
 Citigroup: "Resurging North American Oil Production and the Death of the Peak Oil Hypothesis"

Or 2013's:
"Peak oil theories 'increasingly groundless', says BP chief"

The real 'tell'?

2011's "Re-post: Peak Oil Stalwart to Shutter Forum/News Site, Persue Career as Astrologer"
From Life After the Oil Crash:
Last Friday's update will be the final LATOC Breaking News update. LATOC will remain as an archived resource here on the web but will no longer be updated. I'm moving on to focus on my astrological and related practices. Those of you who have asked about consultations, my standard rate is $200 for a full anaylsis of your chart in MS Word format. More infomation at my astrology site: MattSavinar.net

Best of luck,

Matt

Sunday, January 21, 2018

Rabobank: "World Vegetable Map 2018"

Over the years we've found Rabo to rank among the sharper (read: more accurate in forecasts) analysts in the food and agtech sectors.
Plus, we've never seen something out of the Dutch behemoth to match this from "The great global avocado trade flow chart":
Correction: An earlier version of this item incorrectly described all the avocados exported by the Netherlands as having been grown there....
No sir, Rabobank knows the sourcing of their avocado toast.
On a more serious note, and riffing off the earlier post "Hedge Funds Are Making Money From Bets on "Exotic" Markets", there seems to be a 'growing' interest in financializing flora foodstuffs beyond the big three in the U.S. (plus softs, of course).

Click for the PDF or check in with Rabobank for a poster.

From Rabobank ag research:
The 2018 World Vegetable Map shows essential vegetable trade flows and highlights some key global trends in the sector, such as the growing importance of production in greenhouses and vertical farms, as well as the popularity of organic vegetables.
Rabobank Vegetable Map.jpg
Download > Click here to download the World Vegetable Map
Poster versions of the World Floriculture Map are exclusively available to Rabobank clients. To receive one, please contact your relationship manager.
Map summary: more than just a local affair The global vegetable market is still predominantly a local market. Only 5% of the vegetables grown are traded internationally. But that share is increasing. Easy market access is vital for export-focused vegetable-producing countries like Mexico, Spain, and the Netherlands. Over the last decade, Mexico has further expanded its prominent position on the North American market, and internal EU trade has continued to grow.
Market for fresh (prepared) vegetables up, demand for canned vegetables down An estimated 70% of all vegetables grown in the world are sold as whole fresh vegetables. This market is still on the increase, mainly outside of the US and the EU. Processing of vegetables (freezing, preserving, and drying) is a good way to prevent wastage, but global consumption of preserved (canned) vegetables has decreased over the last decade. At the same time, demand for frozen vegetables has increased by an average of 1% per year. Demand trends seem most favourable for vegetables that are convenient to eat and prepare and/or do well on (social) media because of considered health effects or their visual appeal. Examples are all kinds of (prepared) salads as well as sweet potatoes. EU imports of sweet potatoes (mainly from the US) have tripled in just four years’ time....MORE
And then there's guar. The gum is made from the guar bean and is a versatile food additive.
It is also used in oil fracking.
Which leads me to ask: Did I ever tell you about the great guar squeeze of 2011-12? In 18 months guar gum ran 17-fold.
Back then men were men and beans were for frackin', not eatin' and.....where was I?

Some of our posts from that memorable year:
April 20, 2012 
Commodities: Guar Trades at Record Prices, Frackers Halliburton, Baker Hughes, Schlumberger Suffer (HAL; BHI; SLB)
June 2012
Guar Shortage Still Gumming Up Works for Big Frackers But Relief May Be on the Way (HAL; BHI; SLB)
July 19, 2012  
Earnings Heads-up: "Guar sowing down in India, still time to catch up" (SLB; HAL; BHI)
With guar prices having risen from $1.50 to $25.00 per Kilo and with both Schumberger and Halliburton blaming guar for their Q1 earnings shortfalls and issuing warnings for Q2, all eyes turn to Rajasthan. (well mine, anyway)
Indian market intelligence purveyor Three Headed Lion will sell you their 2012 Guar Gum Report: INDIA for $2975.
There's big money in guar.
Both BHI and SLB report tomorrow, Halliburton on Monday.
Since the Indian authorities suspended futures trading guar only trades physical. This morning's market report: GUAR: Guar and guar gum maintained their last close in thin trading....
July 20, 2012
Fracking: US Drillers Find Respite in Guar War (BHI; SLB; HAL)

Well, you're probably ahead of me on how this plays out:

September 2012
Fracking: India May See Record Guar Crop (HAL; SLB; BHI)

By October the autopsies were being performed:
Lessons From the Attempted Corner and Price Spike in The Guar Futures Trading Fiasco (HAL; SLB; BHI)
The result of the attempted corner and price rise was classic substitution on the part of the oil well service companies. After Halliburton blamed the guar price spike for the drop in their Q1 margins they, Schlumberger and Baker Hughes all began developing substitutes for the humble bean. From HAL's Sept. 4 Q3 profit warning:
The other two-thirds of the margin depression was due to the jump in prices for a key hydraulic fracturing ingredient, guar. McCollum reiterated that high guar prices would weigh on North American margins throughout the rest of this year.

"I suspect that there won't be significant relief from guar pricing in the fourth quarter," he said, while noting the recent good news of rain in India, the world's dominant supplier of guar beans.

"All indications suggest that we should see a significant moderation in guar pricing as we go into 2013," he added.

McCollum said a positive aspect was that Halliburton's substitute for guar, PermStim, met 5 percent of its guar demand in the second quarter, and the uptake had been even more dramatic in the current quarter. Rival Baker Hughes Inc has reported similar success with its own guar substitute.
The other effect was a rush in India to plant guar rather than foodstuffs with the result that guar has given back 2/3 of the 900% price rise and farmers are in the position of  not being able to cover the costs of inputs. There's no doubt that the situation will add to the epidemic of suicides among farmers which passed the quarter-million mark last year.

From Madhyam:
The recent guar trading scandal gives a peek into the murky world of Indian commodity futures markets and reveals how commodity exchanges are acting like casinos for speculators, moving away from their avowed objectives of price discovery and price risk management in an efficient and orderly manner....
The 900% figure was for the 2012 move, the $1.50 to $25/kg action was over 18 months.

Last I saw guar gum isn't even quoted in American anymore, it was trading at 9,345 Rupees per quintal ($146.37 per 100 kilos) with an open interest of 115 contracts for the expiring month.

I'm hearing good things about Chinese garlic though. 
Something about a new use in silicon solar fabrication. No futures yet, you have to stockpile physical but for chart watchers there is a quasi-periodicity to the action. 
As long as the neighbors don't complain about the aroma.

Smart Cities: "Welcome to the neighbourhood. Have you read the terms of service?"

From the Canadian Broadcasting Corporation, January 19:

https://i.cbc.ca/1.4488815.1516060811!/fileImage/httpImage/image.jpg_gen/derivatives/16x9_1180/ts06b25f.jpg?imwidth=720

It's already hard enough to get people to read the terms of service for the apps they use, and experts are skeptical we could expect any better of someone crossing
into the boundary of a smart city neighbourhood, where sensors and data collection abound (Dominique Boutin/TASS via Getty Images)
The L-shaped parcel of land on Toronto's eastern waterfront known as Quayside isn't much to look at. There's a sprawling parking lot for dry-docked boats opposite aging post-industrial space, where Parliament Street becomes Queens Quay. To its south is one of the saddest stretches of the Martin Goodman trail, an otherwise pleasant running and biking route that spans the city east to west.
But before long, Quayside may be one of the most sensor-laden neighbourhoods in North America, thanks to Alphabet's Sidewalk Labs, which has been working on a plan to redevelop the area from the ground up into a test bed for smart city technology.

It's being imagined as the sort of place where garbage cans and recycling bins can keep track of when and how often they're used, environmental probes can measure noise and pollution over time and cameras can collect data to model and improve the flow of cars, people, buses and bikes throughout the day.

Generally speaking, the idea is that all of this data — and the newfound insights its analysis could yield — will help cities run more efficiently and innovate at a faster pace than they do today.
The effort is one of a handful of broad initiatives underway across the world in places such as Dublin, London, Dubai and Seattle. The Canadian government is soliciting pitches for more smart cities across the country, and has promised up to $80 million to communities competing in its Smart Cities Challenge prize.

Sidewalk Labs is basing its smart city proposal on this post-industrial stretch of Toronto known as Quayside — the sort of place where garbage cans and recycling bins can keep track of when and how often they're used, environmental probes can measure noise and pollution over time and cameras collect data to model and improve the flow of cars, people, buses and bikes throughout the day. (Sidewalk Labs)
But when it comes to the data these cities gather, not everyone believes the tradeoff is worth it. Although governments already collect lots of data on their citizens, it's becoming clear that current privacy laws aren't going to be enough to deal with the realities of what most of these visions propose — data collection on a scale that far surpasses what's happening today.

"I think in some ways what we're facing here is a situation where none of this is very much like anything we've seen before," says David Murakami Wood, an associate professor at Queens University, who studies surveillance in cities.
He's not the only one who's skeptical that the law can keep up.

'You can't rely on legislation'
Anyone who's used an app or online service is probably familiar with the concept of consent. It's a legal requirement that companies or public organizations that want your electronic personal information should not only ask first, but explain in detail what they want to collect, what they plan to do with it, who they might share it with and why.

But in a smart city, consent "goes out the window straight away," says Murakami Wood. It's already hard enough to get people to read the terms of service for the apps they use, and experts are skeptical we could expect any better of someone crossing into the boundary of a smart city neighbourhood.

Smart cities, after all, take data collection and analysis to a new, previously unimagined extreme. And with so many different sensors and so much data being collected and analyzed, how could anyone be expected to understand, much less consent to it all?...
...MUCH MORE

Could/Should Jubilee Debt Cancellations be Reintroduced Today?

There was a bit of a hubbub about the idea in the early years of this decade, some links after the jump.
From Michael Hudson's blog:
By M. Hudson (University of Missouri) and C. Goodhart (LSE)
As published by the Center for Economic Policy Research.

Abstract
In this paper we recall the history of Jubilee debt cancellations, emphasizing what their social purpose was at that time. We note that it would not be possible to copy that procedure exactly nowadays, primarily because most debt/credit relationships are intermediated via financial institutions, such as banks, insurance companies, etc., rather than by governments or wealthy families directly. But we argue that the underlying social purpose of such Jubilees – to keep debt within the reasonable ability to be paid without social and economic polarisation – could be recreated via alternative mechanisms, and we discuss the politico-economic arguments for, and against, doing so.
Keywords: Inequality; Debt-Canceling Jubilees; Babylonian and Byzantine Empires; Equity Participation; Student Loans; Land Tax.
JEL categories: E60, E61, E62, E65, H10, H23, H80, N30, N35, P43, Q15, R52, Z13.

Introduction
The idea of annulling debts nowadays seems so unthinkable that most economists and many theologians doubt whether the Jubilee Year could have been applied in practice, and indeed on a regular basis. A widespread impression is that the Mosaic debt jubilee was a utopian ideal. However, Assyriologists have traced it to a long tradition of Near Eastern proclamations. That tradition is documented as soon as written inscriptions have been found – in Sumer, starting in the mid-third millennium BC.

Instead of causing economic crises, these debt jubilees preserved stability in nearly all Near Eastern societies. Economic polarization, bondage and collapse occurred when such clean slates stopped being proclaimed.

(2) What were Debt Jubilees?
Debt jubilees occurred on a regular basis in the ancient Near East from 2500 BC in Sumer to 1600 BC in Babylonia and its neighbors, and then in Assyria in the first millennium BC. It was normal for new rulers to proclaim these edicts upon taking the throne, in the aftermath of war, or upon the building or renovating a temple. Judaism took the practice out of the hands of kings and placed it at the center of Mosaic Law.[1]

By Babylonian times these debt amnesties contained the three elements that Judaism later adopted in its Jubilee Year of Leviticus 25. The first element was to cancel agrarian debts owed by the citizenry at large. (Mercantile debts among businessmen were left in place.)

A second element of these debt amnesties was to liberate bondservants – the debtor’s wife, daughters or sons who had been pledged to creditors. They were allowed to return freely to the debtor’s home. (Slave girls that had been pledged for debt also were returned to the debtors’ households.) Royal debt jubilees thus freed society from debt bondage, but did not liberate slaves.

A third element of these debt jubilees (subsequently adopted into Mosaic law) was to return the land or crop rights that debtors had pledged to creditors. This enabled families to resume their self-support on the land and pay taxes, serve in the military, and provide corvée labor on public works.
Commercial “silver” debts among traders and other entrepreneurs were not subject to these debt jubilees. Rulers recognized that productive business loans provide resources for the borrower to pay back with interest, in contrast to consumer debt. This was the contrast that medieval Schoolmen later would draw between interest and usury.

Most non-business debts were owed to the palace or its temples for taxes, rents and fees, along with beer to the public ale houses and other payments to these institutions. Rulers initially were cancelling debts owed mainly to themselves and their officials. This was not a utopian act, but was quite practical from the vantage point of restoring economic and military stability. Recognizing that a backlog of debts had accrued that could not be paid out of current production, rulers gave priority to preserving an economy in which citizens could provide for their basic needs on their own land while paying taxes, performing their corvée labor duties and serving in the army.

Most personal debts were not the result of actual loans, but were accruals of unpaid agrarian fees, taxes and kindred obligations to royal collectors or temple officials. Rulers were aware that these debts tended to build up beyond the system’s ability to pay. That is why they cancelled “barley” debts in times of crop failure, and typically in the aftermath of war. Even in the normal course of economic life, social balance required writing off debt arrears to the palace, temples or other creditors so as to maintain a free population of families able to provide for their own basic needs....MORE
Related:
June 2012 
Screw You: What Central Bank's Do When They Enforce Price Stability
I proceed on the assumption that our readers are not coupon clippers.
This is getting close to sedition against the rentier class and borders on an an open call for Jubilee.
Aux barricades!
January 2013 
Jubilation: Keynes and the Euthanasia of the Rentier
June 2012
"The Debt Jubilee That Gave Birth to Modern Germany"  
From The Economist's Buttonwood blog:...
April 2013 
Let's Just Proclaim Jubilee: "Quantitative easing should be used to write off government debt"
August 2013 
Jubilee! "Just set fire to Japan's quadrillion debt"
October 2012 
The Logical Endpoint of Quantitative Easing: Jubilee
...HT: Abnormal Returns
AR says see also the FT's Gavyn Davies from Oct. 14.

As  the man said, the idea is gaining traction though it is hardly new. Earlier this summer FT Alphaville linked to some serious commentary in "Debt jubilee for one and all — love, the Queen" (Roach, Buiter, Keen et al).

If you wanted to square the books, short of outright debt forgiveness you could resurrect  the "Trillion Dollar Coin" plan that was making the rounds during the 2011 debt ceiling standoff.
(oddly enough the ceiling doesn't apply to coins, go figure)

Rather than the then au courant idea of depositing one or two of these beauties with the Fed and borrowing against them, the Treasury could sell them outright  in exchange for T-bonds, notes, bills, lint in Ben's pockets etc.

The balance sheet would look something like:

      Fed                                                                             Treasury
3 magic beans                                                  World's greatest seigniorage score

And everyone lives happily ever after.

"Set voting age at 16 to renew EU, says Davos report"

Cui bono?
From Euractiv:
The voting age for next year’s European elections should be lowered to 16 as part of a suite of reforms to revitalise the European project. The proposal is part of the “Renew Europe” initiative which will be launched on 24 January at the World Economic Forum in Davos.

The paper, which was drafted by the WEF following consultations with more than 100 youth, business and political leaders and academics, argues that 17-year-olds are more likely to vote than 18–24-year-olds, and that “those who begin voting early are more likely to carry on doing so”.
Austria is the only EU country to give 16-year-olds the right to vote in national elections, although Scotland did the same for its independence referendum in 2014 and parliamentary elections.

Lowering the voting age across the 27 EU countries that will hold the 2019 European elections has the support of the European Parliament but would require a majority of EU governments to approve a change to electoral law.

The EU will be heavily represented at the Davos forum. Jean-Claude Juncker will attend for the first time as European Commission president while France’s Emmanuel Macron is also scheduled to speak on the final day.

While the Eurozone economy grew by more than 2% in 2017, and unemployment across the bloc fell to a nine-year low of 8.7% in January, the onset of the Fourth Industrial Revolution, and the possible job losses that could result from automation, is expected to dominate many of the fringe meetings in Davos.....MORE
Seriously, who benefits? 
To repurpose Paul Krugman's famous locution: "A first pass answer is..." those who control the levers of agitprop.

Also at Euractiv:
Watch out for the next crisis, gloomy Davos report tells leaders

Hedge Funds Are Making Money From Bets on "Exotic" Markets

"Exotic"?
These boys don't know the meaning of the word. Some slow news day remind me to regale wary yet intrigued reader with a couple tales of the truly exotic.

From Bloomberg, Jan. 14:
  • AHL Evolution, Systematica’s fund beat other trend followers
  • Florin Court up after switching focus; Aspect, GAM join fray
Cheese, sunflower seeds and rough rice sounds like an unappetizing mix -- unless you happen to be a hedge-fund manager.

A handful of computer-driven funds had a bumper 2017 by betting on the future price of such “exotic” assets. The success of this type of managed futures strategy, the industry’s term for trend-following, is now drawing new entrants despite the risks created by the low levels of liquidity.
Hedge funds returns have been battered by central bank monetary policies that have made it more difficult for them to outperform the market in everything from bonds to equity futures. That’s prompting some trend followers to move into less crowded markets such as over-the-counter securities, electricity and coal.

Man Group Plc’s AHL Evolution fund, one of the first to enter this niche market, had a return of 18 percent last year. The Systematica Alternative Markets fund run by Leda Braga fared even better, posting gains of 24 percent, according to a person with knowledge of the matter. By contrast, funds that speculated on more mainstream assets and indexes had average returns of just 1.9 percent.

“Exotic markets provide an opportunity to take bets away from the usual macro risk factors," said Douglas Greenig, the founder of Florin Court Capital and a former chief risk officer of Man Group’s AHL unit. “Sharpening our focus to exotics just made sense."

Quick Turnaround
In April, Florin Court switched its fund’s strategy to focus entirely on exotic assets. That enabled the London-based hedge fund to turn a first-quarter loss of 9 percent into a full-year gain of 7.6 percent, according to a person with knowledge of the matter....MORE

On Today's Installment of What the Hell? "I bought a cryptocurrency mystery box"

From The Outline, January 18:

Saturday, January 20, 2018

Frank Pasquale: "Entrepreneurship Can Be Unproductive or Destructive"

We linked to a similarly titled post last August which someone (ahem) mistook for this piece.
See after the jump if interested.

From Professor Pasquale via Law & Political Economy,
In contemporary American law, few figures are as lionized as the “entrepreneur.” Lobbyists evoke entrepreneurship as a cornucopia of better goods and services at lower prices. Even ostensibly academic business law courses tend to offer a narrative of wise incremental development of legal doctrine toward enabling disruption, easy entry into markets, and ultra-flexible corporate forms. The lawyer is ideally, in this view, a fixer capable of profit-maximizing distributions of responsibility and liability. Some even dream of automating this role via smart contracts, to ensure even more rapid entrepreneurial activity.
Professional Responsibility courses also tend to adopt a similarly reverential attitude toward the business client, instilling an ethic of “zealous advocacy” in generations of students. Few question whether the near-evacuation of ethical self-reflection from advocacy roles systematically advantages dubious (or worse) business propositions.

This emphasis on the disruptive and new is jarring in law, because legal systems’ internal values so often prize stability, regularity, precedent, and tradition. Pressed to justify it, partisans of disruptive innovation often turn to economics—a discipline all too happy to oblige with just-so stories of creative destruction. As William Baumol has observed, where economic growth has slowed, it is often “implied that a decline in entrepreneurship was partly to blame (perhaps because the culture’s ‘need for achievement’ has atrophied). At another time and place, it is said, the flowering of entrepreneurship accounts for unprecedented expansion.” Both policymakers and mainstream legal scholars tiptoe through the tulips of entrepreneurship, wary of disrupting the business plans of the disruptive innovators they admire.

However, as Baumol went on to wisely observe, there is no obvious connection between entrepreneurship and genuine productivity. Productivity, defined from a properly politico-economic perspective, reflects society’s ability to meet real needs, create capabilities, and to promote human flourishing. Some entrepreneurs contribute to it, but others do not. As Baumol observes, there are unproductive entrepreneurial activities, and at “times the entrepreneur may even lead a parasitical existence that is actually damaging to the economy.”  Baumol also argues that the relative balance of productive, unproductive, and destructive entrepreneurs is not dictated by technology or culture. “Changes in the rules and other attendant circumstances can, of course, modify the composition of the class of entrepreneurs,” he reminds us, insisting on the intertwining of political and economic reality.


Frank Pasquale is a Professor of Law at University of Maryland Francis King Carey School of Law.
Note: Some of this post was based on my recent testimony before the U.S. Senate Committee on Banking, Housing, and Urban Affairs Committee, available here.




"The Dangerous Rise Of Unproductive Entrepreneurship"


from the this-is-bad-news dept
For many years now, we've talked about Andy Kessler's concept of political entrepreneurs vs. market entrepreneurs. In Kessler's telling, market entrepreneurs are the kind of entrepreneurs that people usually think about -- the ones creating startups and high growth companies and the like. While not everyone appreciates it, those entrepreneurs tend to provide a lot more to the world than they take away. They may get filthy rich in the process, but they tend to make the world a better place by creating lots of value. The "political entrepreneurs," on the other hand, are those who basically look to abuse the system to create monopoly rents and to limit competition. Those entrepreneurs may also get filthy rich, but they tend to do it by limiting value and locking it up so that only they can get it.

Obviously, one of those is a lot better for society than the other.

Of course, this idea certainly didn't originate with Kessler, either. Just recently, we had James Allworth on our podcast where we talked about this issue in response to an excellent article he'd recently written about how prioritizing profit over democracy was actually damaging American entrepreneurship. In that article, he referred back to the work of William Baumol, who wrote a paper back in 1990, entitled: Entrepreneurship: Productive, Unproductive, and Destructive. As you can see, that one divides entrepreneurship into three categories. Productive loosely maps to "market entrepreneurs" in Kessler's world, while "Unproductive" loosely translates to "political entrepreneurs" as well. Baumol also includes destructive entrepreneurs, who are actively making the world worse -- and getting rich off of people's misery (think drug dealers, and such).

But part of the point of Allworth's article is that it feels like too many people are just focusing on "profit" as the end goal, and thus either unwilling or unconcerned with determining if the entrepreneurship that drives the profit is "productive" or "unproductive." And, now the Economist has weighed in on this issue as well, noting that we're seeing more and more unproductive entrepreneurship in America, and that's a problem. The article focuses on the work of two economists, Robert Litan and Ian Hathaway, who are building on Baumol's concepts and are concerned about where things are heading. One interesting thing: they find that the issue can't be neatly put into the category of "too much regulation" or "too little regulation," but rather find that both of those situations can create the same rise in unproductive entrepreneurship:...
...MORE 



Some Stories About William Baumol

"Turkey's Erdogan says ground offensive on Syria's Afrin has begun"

A threefer-one deal, starting off with DeutscheWelle:
President Recep Tayyip Erdogan says Turkish forces have begun a new air and ground operation to oust Kurdish militants from Afrin. Turkey accuses the Kurdish militia YPG of being a terror group.
Turkish President Recep Tayyip Erdogan said on Saturday that a military operation against the northwestern Syrian town of Afrin, held by US-backed Kurdish militias, "has de-facto been started on the ground."

"This will be followed by Manbij," he added, referring to another Kurdish-controlled Syrian town to the east.

Turkish Prime Minister Binali Yildirim later said Turkish jets had also launched airstrikes against Afrin. The Turkish army said the new operation, dubbed "Olive Branch," aimed to hit positions held by the People's Protection Units (YPG) and "Islamic State" (IS) militants....MORE
From Reuters, Jan. 20:
Russia to demand in UN that Turkey halts Syria operation - RIA citing lawmaker
And from IndraStra, Jan. 19:

The Afrin Gamble: Turkey Starts Offensive on the U.S. backed Kurds
Turkey has started the cross-border bombardment after the threats issued a week ago by Turkish President Tayyip Erdogan to crush Kurdish People’s Protection Units (YPG) militia in Syria's Afrin canton in response to growing Kurdish strength across a wide stretch of north Syria.

Reuters crew filmed Turkish artillery at the border village of Sugedigi firing on Friday morning into Afrin region, and the YPG militia said Turkish forces fired 70 shells at Kurdish villages between midnight and Friday morning. Shelling continued in the late afternoon, said Rojhat Roj, a YPG spokesman in Afrin. Turkish bombardments are the heaviest since Ankara stepped up threats to take military action against the Kurdish region.

Earlier, Turkish media reported that military planning for the offensive was complete and two brigades and 5,000 Free Syrian Army (FSA) fighters were expected to participate. Media reports also stated that General Ismail Metin Temel, a hero of Turkey’s "Euphrates Shield" military incursion into northern Syria in 2016, was handed charge of the Afrin offensive. "Euphrates Shield" was launched on August 24, 2016, and cleared a roughly 2,000 square km area from Islamic State (IS) and YPG control. Officially, the operation was ended in March 2017.

On January 13, the threat was issued after reports that the U.S. plans to create a 30,000-strong Border Security Force (BSF) predominantly made up of Kurdish militias. According to Col. Thomas Veale, the public affairs officer of Operation Inherent Resolve, the U.S.-led coalition is training the Syrian Democratic Forces (SDF) to maintain security along Syria’s borders. SDF is an umbrella group of fighters dominated by the YPG. U.S. State Department spokeswoman Heather Nauert on Thursday urged Turkey not to take any action in northern Syria.

“The operation has actually de facto started with cross-border shelling,” - Nurettin Canikli, Turkish Defence Minister

Turkey sees the YPG as an extension of the separatist Kurdistan Workers’ Party (PKK), which is considered a terrorist group by the U.S. and has fought a bloody insurgency since 1984 that has killed at least 35,000 people. With around one-fifth of Turkey’s population identifying as Kurdish, Turkey views the PKK and moves toward Kurdish independence regionally as an existential threat.

On the other hand, the Syrian Kurds have their own fight with Russia-backed Bashar al-Assad's regime where latter is setting its sights on territory held by Kurdish-led forces including eastern oil fields. Till now, SDF has used the power vacuum caused by the civil war to occupy and seize territories in Syria along the Turkish border. But, the question is how much they are open to the concept of greater autonomy within the framework of the borders of the state as proposed by Walid Muallem, Syria's foreign minister in September 2017.

The American Signal
U.S. President Donald Trump decided to arm YPG fighters despite Turkey's objections and a direct appeal from Erdogan at a White House meeting in May 2017. Tensions between the U.S.and Turkey remain high, despite Trump saying last November that Washington would no longer supply weapons to the YPG. Since then, Ankara has been reinforcing its southern border by sending armored vehicles, tanks, and heavy machine guns, according to local media.

Up until now, the U.S. has been able to deter Russian strikes on SDF forces by launching fighter jet intercepts against Russian jets that cross east and north of the Euphrates river valley. Besides that, there are currently about 2,000 U.S. troops in Syria working with Syrian Kurds. It was unclear how large a contingent of U.S. military might be required for a long-term commitment.

In a speech at Stanford University's Hoover Institution, the U.S. Secretary of State spelled out a U.S. plan to advance a political transition in Syria to oust Bashar al-Assad. A central pillar of Tillerson’s speech is a UN-supervised election that Tillerson predicted would result in new leadership. Key questions that Tillerson left unaddressed, he continued, included how long Assad should remain in power and whether he would play a role in any political transition.

The Russian Influence
In the current situation, it is Moscow, not Washington, that appears to be dictating the terms of engagement over Syria. Russia has based military observers in Afrin since 2015, and the subject of their removal was part of negotiations held between Turkish Army Chief Hulusi Akar and his Russian counterpart Valery Gerasimov and other military and intelligence officials in Moscow on Thursday.

Approximately 180 Russian observers were pulling back from their positions on the Afrin/Turkish border, hours after Turkish artillery began what Ankara said was the "de facto" start of operations against members of the Kurdish YPG militia, which it considers part of the PKK terrorist group. In short, Ankara was waiting for a green light from Moscow....MORE

Apple's Tim Cook Joins the Chorus: "'I don't want my nephew on a social network'"

It's becoming a movement!

"Il faut bien que je les suive, puisque je suis leur chef"
-Ledru-Rollin, 1848*
From The Guardian:

Apple chief talks about tax affairs and overuse of tech at launch of school coding initiative
The head of Apple, Tim Cook, believes there should be limits to the use of technology in schools and says he does not want his nephew to use a social network.

Cook was talking at Harlow college in Essex, one of 70 institutions across Europe that will use Apple’s Everyone Can Code curriculum, it was announced on Friday.

“I don’t believe in overuse [of technology]. I’m not a person that says we’ve achieved success if you’re using it all the time,” he said. “I don’t subscribe to that at all.”

Even in computer-aided courses, such as graphic design, technology should not dominate, he said.
“There are are still concepts that you want to talk about and understand. In a course on literature, do I think you should use technology a lot? Probably not.”

The 57-year old chief executive, who took the reins at Apple after the death of Steve Jobs in 2011, said the company cared deeply about children outside the classroom.

“I don’t have a kid, but I have a nephew that I put some boundaries on. There are some things that I won’t allow; I don’t want them on a social network.”...MORE
*Schoolboy French translation: "I must follow them for I am their leader." 

Previously:

"CalSTRS Releases Statement on Letter to Apple"
I'm starting to think everyone involved is trying to get in front of a train that had been gathering momentum....
UPDATED—"Investors Push Apple to Develop Tools to Respond to Smartphone Addiction in Youth" (AAPL)
Counterpoint: "No, Apple Is Not Responsible For Your Kids' Smartphone Addiction"
Apple's Response To iPhone Addiction Concerns (AAPL)  

Turing: "Strong meat with strawberries"

By Sir John Dermot Turing, DPhil, 12th Baronet Turing at ETH Zürich's Turing Center blog, January 2018:
To the outsider, some of Alan Turing’s work can be difficult to grasp—unless you are an academic specialist it can be challenging. To use Alan Turing’s own words, when he was himself wading through John von Neumann’s book on Quantum Mechanics (in German) in the 1930s, it can be ‘rather strong meat’. As an outsider, I do not even know how to begin with, say, Alan’s paper 'Computability and λ-Definability' [1] with its profusion of Greek and Gothic letters. Lambda-calculus is not for the faint-hearted. It’s possibly for this reason that some people said Alan Turing was completely impossible to understand.

But Alan himself knew that new ideas needed to be described and explained in homely ways. His most enduring work—the discipline of computability, created in his 1936 paper 'On Computable Numbers, with an Application to the Entscheidungsproblem' [2]—was described in terms of an imaginary machine, an idea that non-specialists can easily grasp. The practical, hands-on approach to his work was always evident—for example in his designs for the British cryptological Bombe and for his phone-call encryption machine Delilah, as well as for an analogue machine that would find solutions to Riemann’s zeta-function.

As his career moved on, so Alan Turing’s writings and speeches moved away from lambda-calculus as a form of expression. Having had to explain himself at Bletchley Park to non-specialists, military folk, newcomers, and people from many non-mathematical disciplines, he became more adept at an everyday way of writing. His 1950 paper 'Computing Machinery and Intelligence' [3] includes a famous passage on the subject of his Imitation Game, now also known as the Turing Test. He wrote:

Let us listen in to a part of such a viva voce:
Interrogator: In the first line of your sonnet which reads "Shall I compare thee to a summer’s day", would not "a spring day" do as well or better?
Witness: It wouldn’t scan.
Interrogator: How about "a winter’s day". That would scan all right.
Witness: Yes, but nobody wants to be compared to a winter’s day.

Perhaps this next passage from 'Computing Machinery and Intelligence' is less well-known. Alan is debunking arguments that machines can’t think because it will never be possible to build a machine that can do such-and-such a thing, for example learn from experience, use words properly, or enjoy strawberries and cream:

A man has seen thousands of machines in his lifetime. From what he sees of them he draws a number of general conclusions. They are ugly, each is designed for a very limited purpose, when required for a minutely different purpose they are useless, the variety of behaviour of any one of them is very small, etc., etc. Naturally he concludes that these are necessary properties of machines in general … The inability to enjoy strawberries and cream may have struck the reader as frivolous. Possibly a machine might be made to enjoy this delicious dish, but any attempt to make one do so would be idiotic....
...MORE

"Bitcoin and Ethereum Have a Hidden Power Structure, and It’s Just Been Revealed"

From MIT's Technology Review:

Close examination reveals how power is being consolidated across their networks.
In cryptocurrency circles, calling something “centralized” is an insult. The epithet stems from Bitcoin creator Satoshi Nakamoto’s revelation: a monetary system doesn’t need a central authority, like a government, to work. That’s such a potent idea that it’s morphed into a battle among crypto-enthusiasts between good—that is, “decentralized”— currencies and evil ones, or anything with a whiff of “centralization,” that are assumed to threaten the utopian view of cryptocurrencies as the vehicle for a new financial world order.

Do these arguments hold any water? Emin Gün Sirer, a cryptocurrency expert at Cornell University, says in many cases the jury’s still out—mainly because no one’s bothered to take a hard look at how decentralized these networks actually are.

“We don’t have any real metrics yet.” he says. His group aims to help change that with newly published results from a two-year-long study focused on Bitcoin and Ethereum, the world’s most popular cryptocurrency networks.

Perhaps the most striking finding is that the process of verifying transactions and securing a blockchain ledger against attack, called mining, is not actually that decentralized in either system. Bitcoin and Ethereum are open blockchain systems, meaning that in principle anyone can be a miner (see “What Bitcoin Is, and Why It Matters”). But organizations have formed to pool mining resources. The researchers found that the top four Bitcoin-mining operations had more than 53 percent of the system’s average mining capacity, measured on a weekly basis. Mining for Ethereum was even more consolidated: three miners accounted for 61 percent of the system’s average weekly capacity....MORE