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Krugman on BitCoin

krugman.blogs.nytimes.com

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Re: Krugman on BitCoin

#51

Post by danenania »

Duff wrote: post #44
danenania wrote: post #13

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.

"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."

So how much would computers have to fall in price every year before people stopped buying them?

Re: Krugman on BitCoin

#52

Post by Robin_Message »

shivak wrote: post #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…

The monetary value of gold is in excess of its intrinsic value — exactly like Bitcoin. It's only a question of degree. And "shiny things" as a motivation for mining explains gold and Bitcoins.

Re: Krugman on BitCoin

#53

Post by brown9-2 »

hexis wrote: post #8
endersshadow wrote: post #3

Earlier quoted context omitted.

He also touches on a great point: What we want from a monetary system isn’t to make people holding money rich; we want it to facilitate transactions and make the economy as a whole rich. This is where I think Bitcoin fails as a currency. While some people invest in currencies, the point of currencies is to allow goods and services to flow through the economy. Currency is and should not be primarily an investment vehi…

Currencies are goods like any other goods and the people who own them have divergent purposes. When Krugman writes "we want [a monetary system] to facilitate transactions and make the economy as a whole rich", he's assuming a lot. Obviously, some of the people who own bitcoins right now are not interested in facilitating financial transactions to the detriment of their net worth. So, for people who want that facilita…

I don't think it's just an assumption - I think it is fair to state that a currency whose primary mission is not to facilitate transactions will fail to catch on. So far BitCoin has failed to catch on.

Re: Krugman on BitCoin

#54

Post by jackpirate »

Duff wrote: post #44
danenania wrote: post #13

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.

People definitely do that with electronics too. As prices have dropped, people are upgrading their computers or buying their first more often. I'd wager the rate of consumption has been directly proportional to the rate of price drop for electronics. Of course, we are unlikely to see computer prices rise anytime soon.

Re: Krugman on BitCoin

#55

Post by harryf »

pnathan wrote: post #27

One thing that might be interesting to consider is wealth distribution over population growth. Thought experiment: Say our money supply is fixed (10 million dollars), and there are 1 million people in our economy. Everyone averages out to holding about 10 dollars. Everyone goes on a massive baby-making spree, and in 10 years, there are still 10 million dollars, but 2 million people in the economy. Average wealth is $…

But money isn't static. It circulates. Liquidity etc. It's more like electric current - if your system allows it to circulate fast, it will enable more buying...

Re: Krugman on BitCoin

#56

Post by sirclueless »

endersshadow wrote: post #45
narkee wrote: post #28

Earlier quoted context omitted.

>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'…

> Debt-financed spending means that future money is not going towards goods and services.

This is a major hole in my current understanding of economic theory. My gut reaction tells me that being in debt should be bad but if you think about it, it's really a good place to be. If the general monetary supply is inflationary, then money you owe is gradually losing value. Which is an excellent proposal for those in debt: do nothing and wait, and you will owe less material value. So when you say that "future money is not going towards goods and services" I am at least a little OK with that, because future money isn't worth as much as money today, in actual fact.

Re: Krugman on BitCoin

#58

Post by danenania »

ww wrote: post #49
danenania wrote: post #13

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 at…

Prices decrease under a stable money supply because the economy grows. Goods and services are being produced more efficiently and are therefore more plentiful relative to the same quantity of money and therefore cheaper. Growth in the value of money will simply reflect baseline growth in the value of the economy as a whole. There are still much higher returns available to investors who are willing to take greater risks--no external motivation is necessary. Monetary expansion doesn't alter this basic relationship, it just ruins the currency as a reliable store of value.

Re: Krugman on BitCoin

#59

Post by danenania »

Duff wrote: post #38
endersshadow wrote: post #3

Earlier quoted context omitted.

He also touches on a great point: What we want from a monetary system isn’t to make people holding money rich; we want it to facilitate transactions and make the economy as a whole rich. This is where I think Bitcoin fails as a currency. While some people invest in currencies, the point of currencies is to allow goods and services to flow through the economy. Currency is and should not be primarily an investment vehi…

Exactly. Bitcoin is a commodity, not a currency.

What's the difference?

Re: Krugman on BitCoin

#60

Post by sirclueless »

danenania wrote: post #30
sirclueless wrote: post #20

Earlier quoted context omitted.

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.

You don't need to take away people's purchasing power to encourage them to invest. If an economy is growing, there will always be higher returns in investment than in holding cash. Monetary expansion encourages unsustainable consumption and debt accumulation. Why is this preferable to saving? When people save, they don't do it with the intention of one day dumping the money in a lake. They are still going to use the…

I don't want to take away people's purchasing power now, I want to sap away their purchasing power over time. If I do that I encourage them to take their money and invest it into a factory producing widgets instead of squirreling it away into a bank. Inflating the value of money gives an unfair advantage to people who use their money to improve the world by producing things. Being in debt sounds like an OK trade to me so long as it's not pathological.
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