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Krugman on BitCoin

krugman.blogs.nytimes.com

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Re: Krugman on BitCoin

#91

Post by nextparadigms »

andylei wrote: post #16
nextparadigms wrote: post #9

Earlier quoted context omitted.

But won't it also encourage people to be wiser with their money, and not waste them on unimportant stuff? If what you're buying has higher value to you than holding the money, then you'll buy it. Isn't overspending what got us into this financial mess in the first place? And getting into too much debt, whether it's the Government itself or the people. Also the deflation effect should only be this great in the early y…

>> Isn't overspending what got us into this financial mess in the first place? Nope, it was overborrowing. One of the reasons that the economy is sluggish is that consumers are underspending. >> it has reached its maximum of 21 million bitcoins, the deflation should be a lot smaller That's when deflation in bitcoins will get worse, because while wealth will increase, the amount of currency in circulation will not.

Yes, overborrowing, but peopled overborrowed so they can spend more, not to invest.

Re: Krugman on BitCoin

#92

Post by alenlpeacock »

There's another argument against fixed currencies like bitcoin that should resonate with the hackernews crowd, and it's this:

A currency with inflationary pressure incentivizes investments into new enterprises. A currency with deflationary pressure, instead, discourages investment outside of banking.

Here's why. With a slight inflation, money slowly loses value. Even if you put it in the bank and earn interest, it loses value over time. So the rational thing to do, if you have a lot of excess money, is to find places to put it where it outperforms inflation, where it has a chance of not evaporating over time.

With deflation, money is instead guaranteed to be more valuable tomorrow than it is today. Sure, you could still try to invest some of it to try to outperform the gain you get from deflation, but it would be completely rational to just stick all of it in the bank, and live the good life forever, as your money automatically becomes more money (because its buying power increases), every day.

Why is there so much money managed by VC and Angel funds? While not the only reason, I'd claim it has a lot to do with inflation.

And, of course, I'm making things more b&w than they really are. Both massive inflation and massive deflation are really bad things. Currency that stays largely stable, or that deflates/inflates slowly over time, seems to work out fine.

Re: Krugman on BitCoin

#93

Post by euroclydon »

maratd wrote: post #84
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…

How is it any better when prices keep going up? Imagine you're, gasp, a saver, and one day you decide to buy that hamburger, but now you need five or ten times the money to make the purchase as you did, when you stashed it away twenty years ago.

Re: Krugman on BitCoin

#94

Post by sprovoost »

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…

I've never seen convincing evidence that inflation is a good thing (to be honest I haven't spent my life searching for it).

It is however pretty easy to see why inflation is good for people in power, in particular governments; it's a hidden tax. And yes it does encourage people to spend, in fact it encourages people to borrow and then spend. Even borrow so much that it crashes the system.

So as far as I'm concerned the fixed money supply is about the only good property of Bitcoin. Other than that it's a ponzi scheme and it's a lot more cumbersome than electronically traded gold.

Re: Krugman on BitCoin

#96

Post by orbenn »

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?

That would be true if owning bitcoins had intrinsic value, but they only have value in terms of the things they can purchase, so no. Bitcoin maturity will actually cause bitcoins to decrease in value as inflation in the rest of the economy outpaces the rate of new bitcoin creation.

Re: Krugman on BitCoin

#97

Post by Anechoic »

nextparadigms wrote: post #91
andylei wrote: post #16

Earlier quoted context omitted.

>> Isn't overspending what got us into this financial mess in the first place? Nope, it was overborrowing. One of the reasons that the economy is sluggish is that consumers are underspending. >> it has reached its maximum of 21 million bitcoins, the deflation should be a lot smaller That's when deflation in bitcoins will get worse, because while wealth will increase, the amount of currency in circulation will not.

Yes, overborrowing, but peopled overborrowed so they can spend more, not to invest.

A lot of that overborrowing was to buy homes, a commodity which (according to conevtual wisdom) always increases in value.

So yes, a lot of that overborrowing was for investment.

Re: Krugman on BitCoin

#98

Post by rabidsnail »

euroclydon wrote: post #93
maratd wrote: post #84

Earlier quoted context omitted.

> 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…

How is it any better when prices keep going up? Imagine you're, gasp , a saver, and one day you decide to buy that hamburger, but now you need five or ten times the money to make the purchase as you did, when you stashed it away twenty years ago.

Inflation encourages the savers to put their money to work (by investing in the stock market, for example) so that the amount of money that they have increases in proportion to the growth of the overall economy. This is a benefit.

Re: Krugman on BitCoin

#99

Post by alttab »

theschwa wrote: post #87
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 c…

I think you need to read more about bitcoin. First, having a centralized bitcoin bank defeats the purpose of a peer-to-peer system entirely. Your identity is no longer anonymous.

Second, providing interest to those that hold their bit coins in this bank must provide some facility for the bank to be able to give out bit-coins they didn't previously have (fractional reserve banking). Due to the mining nature of bit-coins which is not regulated by the fed but limited to an absolute supply, interest can not always be guaranteed to the holders, and there would be a run on the accounts to pull out.

What you've described is the system we have- BitCoin is an experiment on something different.

Re: Krugman on BitCoin

#100

Post by johnthedebs »

maratd wrote: post #84
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…

The problem isn't the psychological effects of needing to constantly lower prices – this happens all the time in the tech industry, and everyone in that industry is doing just fine psychologically.

Rather, it has to do with the fact that constantly down-shifting prices cause people not to buy nearly as often as they would if prices were stable or slightly inflationary. As a result of that, the economy slows down (sometimes dramatically).

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