Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Krugman on BitCoin

krugman.blogs.nytimes.com

Post reply on HN
Print view View original

81–90 of 306 posts

Re: Krugman on BitCoin

#81

Post by Duff »

danenania wrote: post #51
Duff wrote: post #44

Earlier quoted context omitted.

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?

The number depends on your cost structure. I can tell you that where I worked, we traditionally planned on keeping most servers in service for 40-72 months.

When Nehalem processors came out, the economics shifted, and there was a financial case for retiring devices at 24-36 months and consolidating them into virtual machine clusters.

Without that consolidation opportunity, we probably would have extended the lifecycle of our server longer to preserve cash in 2009.

Re: Krugman on BitCoin

#82

Post by sliverstorm »

alenlpeacock wrote: post #79
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?

Not to mention, as bitcoins are inevitably lost here and there (a deleted wallet.dat here, a hoarder there, a transaction wired to a mistyped address that doesn't exist) the supply of bitcoins will actually shrink.

Re: Krugman on BitCoin

#83

Post by zeteo »

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

Earlier quoted context omitted.

Exactly. Bitcoin is a commodity, not a currency.

What's the difference?

Post is being downvoted, but it's a valid point. Lots of things have been used as currencies. WW2 POWs used cigarettes; some Pacific islanders used huge, immovable rocks. If anything, BitCoin is much more like a currency, because, unlike commodities, it has no other use.

Re: Krugman on BitCoin

#84

Post by maratd »

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…

> Perhaps when Bitcoin reaches supply maturity the value will stabilize

I absolutely hate Krugman, but this is Econ 101 and even he gets it right. Bitcoin was a flawed experiment from the start because it has an absolute supply limit. Reaching that limit won't help. It'll make things worse. The money supply needs to expand for healthy economic activity and growth. If it doesn't, weird shit starts to happen.

Here's an example. In a normal economy, the population is constantly expanding. That means you need more $$$ in the system for each new person. If more money doesn't enter the system, the value of money goes up because of increasing demand and you start experiencing deflation.

Deflation is really really bad. Imagine you're a store owner. All of a sudden, people stop buying your stuff. Not because they don't want to, they love your stuff ... they just don't have enough money. So you lower your prices. Things go back to normal. Your own expenses go down as well, after all, everybody experienced deflation.

No big deal, right? This is what happens when a computer scientist creates a currency. Just adjust to the new price level, right? WRONG. It IS a big deal.

Think of the psychological effect of having to CONSTANTLY lower your prices on your goods. At some point, you'll hang yourself. You want to charge more, not less. It is absolutely depressing and has a real effect. Deflation is absolutely horrible.

Re: Krugman on BitCoin

#85

Post by sliverstorm »

danenania wrote: post #42
cperciva wrote: post #19

Earlier quoted context omitted.

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?

Electronics are a special market. I think people have in general come to accept and understand that the money they lose in buying electronics now, instead of later, is small compared to the utility they get now.

It also helps that constant development and improvements keeps the decline in pricing small. An iPod today, while much more impressive, I believe still has a similar price to 10 years ago.

Re: Krugman on BitCoin

#86

Post by cbr »

IanDrake wrote: post #63
St-Clock wrote: post #34

Earlier quoted context omitted.

> I'm not sure Krugman's reputation is as reputable as you suggest I know that winning the Nobel Prize is not the end of the world and that there are often political motives behind these prizes (Obama anyone?), but between believing a guy who won a Nobel Prize in economics vs. believing a random guy on HN with no real argument, the choice is easy (to me at least). To the best of my knowledge, Krugman rarely (if ever)…

In economics people win for their work, not their winning personality. Krugman won for "his analysis of trade patterns and location of economic activity" - http://www.nobelprize.org/nobel_prizes/economics/laureates/2... Hayek also won the Nobel Prize and would undoubtedly disagree with almost everything Krugman believes. He won for "pioneering work in the theory of money and economic fluctuations and for their penetr…

The executive order you link to has not been in effect since the 70s.

Re: Krugman on BitCoin

#87

Post by theschwa »

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…

Collecting a currency wouldn't be a problem if there was some type of Bitcoin bank. These people who are hoarding the currency could put their Bitcoins in the bank for a promised interest rate, and in the mean time the bank could loan out the money to borrowers for new investments, thus growing the economy.

I'm also not sure how much Krugman has looked at the price of Bitcoin. Every time I've looked at the price it continues to go down in terms of USD. A couple months ago it was around $16 now its at $7.

I think Bitcoin's real problem is the fact that it's not actually a commodity, because it's price isn't backed by any real goods. In that sense it's more similar to the dollar.

Re: Krugman on BitCoin

#88

Post by alenlpeacock »

narkee wrote: post #28
sirclueless wrote: post #15

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…

It isn't an argument about saving vs. spending, it's an argument about what, fundamentally, money is.

Money is a temporary store of value. Imagine a world without it. How would commerce work? Via direct barter. Direct barter is inefficient, because you may have to engage in an entire chain of transactions in order to get the one good you are trying to obtain. That's money's purpose -- to make this more efficient.

What Krugman is saying, and I think it's hard to dispute, is that a currency that incentivizes hoarding rather than transfer of temporary value is an extremely inefficient one, in terms of economic activity. And free markets hate inefficiency, right?

Re: Krugman on BitCoin

#89

Post by SHOwnsYou »

danenania wrote: post #42
cperciva wrote: post #19

Earlier quoted context omitted.

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?

Electronics don't get cheaper every year because the dollar strengthens. They get cheaper every year because the production process becomes more efficient.

Some things can't really get cheaper every year (without some exogenous shock) -- anything with really high fixed costs of production OR a requirement of some level of quality by purchasers.

For example, it takes a ton of land to grow corn. As the population grows, the demand for and value of land will rise. That means that for the farmer to keep growing corn on his land, instead of selling it or using it in a new profitable venture, the corn needs to be producing a higher level of income for him than it had previously when land was cheaper.

Similarly - grass fed beef is not going to get cheaper. In addition to land requirements, there is the quality requirement also. If someone demands higher quality food, higher standards need to be followed, higher quality inputs need to be used, and a third party needs to ensure that those requirements are being followed.

Re: Krugman on BitCoin

#90

Post by anigbrowl »

danenania wrote: post #42
cperciva wrote: post #19

Earlier quoted context omitted.

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?

I actually do postpone electronics purchases because of falling prices. Electronics have low resale value and resale/upgrade is time-consuming. I tend to just wait for a price drop and then buy last year's best thing, rather than worry about having the fastest computer on the block.

If it's for work and there's some measurable benefit to the latest and greatest (rather than just showing off), that's different. But as a matter of habit, I only build a new PC once every 3 years; for about the same amount of cash, I get a roughly 400% speed boost.

Post reply on HN