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Krugman on BitCoin

krugman.blogs.nytimes.com

41–50 of 306 posts

Re: Krugman on BitCoin

#41

He's just begging the question. That a fixed currency supply creates deflation is not a new insight. The idea that this causes 'hoarding' is highly questionable. Prices in consumer electronics fall significantly every year. Does this cause people to hold onto their money instead of buying computers, tvs, and iphones? Of course not. Why would other types of goods be any different? People still need what they need and…

Fair enough, but I think most economists would agree that we shouldn't be trying to make savers and fixed-income earners wealthy in the first place. We should make it economically advantageous for the people with money saved up to invest it into the economy.

yep, butt it still depends on your standpoint - where u stand in the economic ladder matters a lot.

If you are on top, you wouldn't want to make extra effort to stay there!

Re: Krugman on BitCoin

#42

He's just begging the question. That a fixed currency supply creates deflation is not a new insight. The idea that this causes 'hoarding' is highly questionable. Prices in consumer electronics fall significantly every year. Does this cause people to hold onto their money instead of buying computers, tvs, and iphones? Of course not. Why would other types of goods be any different? People still need what they need and…

There's a difference between some goods -- electronics -- getting cheaper every year and all goods getting cheaper every year. Deflation isn't necessarily a problem; but runaway deflation is, and the structure of bitcoin makes deflation a self-perpetuating cycle.

"There's a difference between some goods -- electronics -- getting cheaper every year and all goods getting cheaper every year."

Which is what exactly? People buy electronics even though they get cheaper every year but they wouldn't buy Xs if they got cheaper every year? Can you give me an example of some Xs?

Re: Krugman on BitCoin

#43
post #32

I don't get the problem with hoarding. Most people don't hoard gold, property or tech stocks during times when the price looks like it's increasing constantly. There is a point where it makes sense to sell some after it has made some gains. In reality, unless buyers make a massive mistake in the valuation of BitCoins, the current gains in BitCoins value should taper off at some point.

People don't hoard stocks or property when the value of what they own is constantly increasing?

Re: Krugman on BitCoin

#44

He's just begging the question. That a fixed currency supply creates deflation is not a new insight. The idea that this causes 'hoarding' is highly questionable. Prices in consumer electronics fall significantly every year. Does this cause people to hold onto their money instead of buying computers, tvs, and iphones? Of course not. Why would other types of goods be any different? People still need what they need and…

Electronics are not commodities -- you get value out their use. Electronic devices would have to fall in price enough to exceed the value of having and using the device.

If you look at people's behavior with a commodity like gasoline, you'll see similar behavior. When prices go up, people will "top off" their cars more frequently. When prices are falling, people tend to go further between fill-ups.

Re: Krugman on BitCoin

#45
post #28

Earlier quoted context omitted.

You basically interpreted this backwards. When Krugman says that the bitcoin economy has experienced deflation, he means that a bitcoin is worth more now than it was in the past. The graph on bitcoinmarket certainly shows this. If I wanted to buy a motorcycle in bitcoins in 2010 I would have needed several thousand. Now I only need a few hundred. Which means that I would have been stupid to spend my bitcoins last yea…

>And most economic theory says that the more people spend money the healthier the economy becomes Doesn't that seem like a bizarre theory since the economy is in shambles and debt-financed spending seems to be getting higher and higher (consumer/credit card debt, etc.) I thought people were supposed to be encouraged to save, pensions, 401k and Roth IRAs, etc. Is overall economic health inversely related to individual…

The more people spend money that they have. Debt-financed spending means that future money is not going toward goods and services.

Investment is a good thing to have, too:

GDP = Consumption + Gross Investment + Government Spending + Trade Surplus/Deficit

Paying back of credit card debt (at least principal) doesn't fall into this equation. The interest falls into the Consumption category (paying for a service). That's why consumer debt adversely hurts GDP when out of control.

Re: Krugman on BitCoin

#46

He's just begging the question. That a fixed currency supply creates deflation is not a new insight. The idea that this causes 'hoarding' is highly questionable. Prices in consumer electronics fall significantly every year. Does this cause people to hold onto their money instead of buying computers, tvs, and iphones? Of course not. Why would other types of goods be any different? People still need what they need and…

That's not exactly an apples-to-apples comparison. But, to answer your question, "Does this cause people to hold onto their money instead of buying computers, tvs, and iphones?" The answer is yes (with qualifiers). Many late adopters are late adopters because they are holding out for a cheaper price for those goods. From personal experience, I've done this very thing (waiting for prices to come down on a TV before I…

"The answer is yes (with qualifiers). Many late adopters are late adopters because they are holding out for a cheaper price for those goods. From personal experience, I've done this very thing (waiting for prices to come down on a TV before I bought it). I put that money into something with a higher return for the time being."

But you could have kept waiting and prices would have kept falling. Eventually you spent your money anyway. This seems to indicate that it wasn't the situation of falling prices that prevented you from buying a TV, since that never changed, but some external factor.

"But, the reason that's not exactly a fair comparison is that the currency itself (in this case, USD) was not deflating. Ergo, my "hoarding" was actually putting it into something with a better return for the time being, which was available because the currency was stable. If the best return I could get was holding on to my money (instead of putting it in some sort of investment vehicle), then that would be deflation."

The currency was deflating relative to TVs. Holding cash does provide a better return than holding a TV. The value of a TV depreciates much faster than cash. That's the point--why would anyone ever buy a TV when if they just held onto their money for a month they could always get a better TV for the same amount? Since TV prices are always falling, this question reduces to: why would anyone ever buy a TV? The answer is pretty simple--people want TVs. At some point if they want one, they're just going to buy one regardless of what the prices are doing, just like you did. So where's the problem?

Re: Krugman on BitCoin

#47
post #21

Earlier quoted context omitted.

I don't agree. The falling prices are holing me and many other frugale people back from buying electronics frequently. The reason people buy new electronics so often, is because there is so much improvement and innovation.

So you'd buy more electronics if the prices went up every year?

In economic speak, he's saying he'd be less willing to defer the utility of purchasing electronics if they increased in price every year.

Currently, you can invest your money elsewhere at the opportunity cost of foregoing the utility of whatever gadget it is that you want to buy until the utility of said gadget is worth to you what its price is.

Re: Krugman on BitCoin

#48
post #25
post #6

Earlier quoted context omitted.

Uh, where are the BTC prices on that site? If you want to come across as anything other than a froth-mouthed crackpot hurling ad-hominems at a respected economist, you need to offer up some actual data. Granted, Krugman didn't either, but he's got a reputation to fall back on, you've got nothing.

I'm not sure Krugman's reputation is as reputable as you suggest. Some might even call him a "froth-mouthed crackpot hurling ad-hominems". Not me of course, I wouldn't want to hurl ad-hominems in place of a real argument. Better to appeal to authority.

Better than new HN account with negative karma? Yeah, I'm really sticking my neck out.

Re: Krugman on BitCoin

#49

He's just begging the question. That a fixed currency supply creates deflation is not a new insight. The idea that this causes 'hoarding' is highly questionable. Prices in consumer electronics fall significantly every year. Does this cause people to hold onto their money instead of buying computers, tvs, and iphones? Of course not. Why would other types of goods be any different? People still need what they need and…

"People still need what they need and want what they want and are going to buy those things regardless of what relative prices will be in the future."

What about "investors" instead of "consumers"? Right now an investor simply makes a choice between losing money by sitting on it (through increased supply ... printing money leads to inflation) or investing. If the money supply were fixed would that not make it more attractive to investors to sit on assets?

Re: Krugman on BitCoin

#50
His description of Bitcoin is technically incorrect. As described in the original Bitcoin paper, workers are not necessarily "miners" and may be funded by transaction fees.

Bitcoin isn't susceptible to hoarding because, unlike gold, it has no intrinsic value. An alternative explanation for the rise in value: the Bitcoin ecosystem is under heavy development. The value of Bitcoins is possibly soaring in anticipation of this infrastructure i.e. its utility as a currency.

I wouldn't rely on Krugman's blog for serious analysis.

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