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Krugman on BitCoin

krugman.blogs.nytimes.com

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Re: Krugman on BitCoin

#71

Post by Game_Ender »

sirclueless wrote: post #56
endersshadow wrote: post #45

Earlier quoted context omitted.

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:…

Interest usually fixes that equation nicely. Typically inflation is 2-3% and right now the cheapest money you can get is around 4%. So even with inflation factored in holding onto your debt will cost you more then paying it off right away.

Re: Krugman on BitCoin

#72

Post by sliverstorm »

danenania wrote: post #59
Duff wrote: post #38

Earlier quoted context omitted.

Exactly. Bitcoin is a commodity, not a currency.

What's the difference?

"A commodity is a good for which there is demand, but which is supplied without qualitative differentiation across a market... Examples are petroleum and copper. The price of copper is universal, and fluctuates daily based on global supply and demand."

You could say a commodity is like a currency many people can produce.

Considering how commodities are often produced, the term "Bitcoin mining" is shockingly apt.

Re: Krugman on BitCoin

#73

Post by anigbrowl »

danenania wrote: post #59
Duff wrote: post #38

Earlier quoted context omitted.

Exactly. Bitcoin is a commodity, not a currency.

What's the difference?

Volatility. An ideal currency is immune to supply and demand and is simply a medium of exchange for actual commodities (which can be burned/eaten/used to manufacture things). Of course no currency can meet this ideal, but maintaining stability is a key task of a central bank.

Re: Krugman on BitCoin

#74

Post by icebraining »

gwright wrote: post #25
dasil003 wrote: 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.

An appeal to authority is only fallacious if the authority is not a legitimate expert on the subject or if the conclusion is said to be true, and not just probable.

In this case, an appeal to authority is a perfectly valid way of asserting that a certain conclusion is more probable than the other.

Re: Krugman on BitCoin

#76

Post by icebraining »

jarek wrote: post #24
onemoreact wrote: post #18

Earlier quoted context omitted.

Let's say the total value of Bitcoin's in the world in 15 years is the same as the total value of Australian dollar's (AUD) in the world. Based on the rate of production it's going to take a massive amount of deflation to get there. That might make Bitcoins a good investment but it also makes them a terrible currency. (~261 billion AUD * 1.1USD/AUD / 21 million bitcoins = 13,600$/bitcoin.) All of which is beside the…

I'm not sure I see the value of a pure digital currency, anyway. My dollars are digital when I want them digital (paycheques, moving between accounts, bill payments), and physical when I them physical (ATM withdrawal, quick cash IRL transactions).

And non-existent when the organization holding them for you (e.g. Paypal) decides to freeze your account.

Re: Krugman on BitCoin

#77

Post by jeffdavis »

sirclueless wrote: post #20
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…

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.

I've always been suspicious of this "spending is better than saving" mantra. I'm sure it's better in some situations, but I don't think it's better in general.

The point of an economy is not to spend money, it's to create more wealth for more people by allocating resources efficiently. If someone "hoards" money, and prices are stable, that person is effectively staying out of the resource-allocation business. It doesn't mean that there are fewer resources to allocate, it just means that other people are doing the allocating (even though those people collectively have less money because of "hoarders", prices are lower because of them, too).

You can make an argument that everyone needs to take part in efficiently allocating resources, and that makes a lot of sense. But to say that buying a bunch of consumer junk is a good way to do that is ridiculous (and bad for the environment).

A middle ground is to buy the things you need, a few things you want, and make conservative investments. That allows most individuals to mostly stay out of the resource allocation business, but still enjoy the benefits.

Re: Krugman on BitCoin

#78

Post by anigbrowl »

nandemo wrote: post #17
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…

If Bitcoin ever becomes a successful, liquid currency, it will have been partly thanks to the current speculators. They're the ones "mining" the bitcoins. They're taking the risk. In a way, it's similar to gold miners of old. They would invest money in digging and mining for the chance of finding gold. They were in it for the profit. Still, it did benefit other people since there was more gold available for both util…

What risk? All the Bitcoin miners I know are patting each other on the back on how much mining their fancy GPU is doing. Risk: one or more graphics cards (that are also used to play videogames) and a slightly elevated electricity bill from leaving the computer on all day and night. There isn't a lot of effort or ingenuity going on here, just an information asymmetry.

Re: Krugman on BitCoin

#79

Post by alenlpeacock »

snorkel wrote: post #33

"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. And that’s not at all what is happening in Bitcoin." Spot friggin' on, Mr. Krugman. Bitcoin's supply limiting design has added a psychological dimension that encourages collecting. Perhaps when Bitcoin reaches supply maturity the value will stabilize but for now its…

When Bitcoin reaches supply maturity, there will be no more bitcoins to mine, making those that are currently held even more valuable, making those who hold them even more inclined to keep hoarding them, no?

Re: Krugman on BitCoin

#80

Post by scott_s »

icebraining wrote: post #75
cube13 wrote: post #69

Earlier quoted context omitted.

Commodities are things people buy. Currencies are what people use to buy commodities with.

So what's the Swiss Franc right now?

Note that people treating the Swiss Franc as a commodity is harming the Swiss economy.

See http://www.npr.org/blogs/money/2011/08/19/139791374/the-frid... and http://www.npr.org/blogs/money/2011/09/06/140211340/swiss-to...

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