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Krugman on BitCoin

krugman.blogs.nytimes.com

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Re: Krugman on BitCoin

#141

Post by alenlpeacock »

3pt14159 wrote: post #138
alenlpeacock wrote: post #133

Earlier quoted context omitted.

Inflation/deflation has very little impact on the poor; the poor spend almost 100% of their income within a short window of receiving it just to survive. From the view of poverty, saving money is a rich man's luxury, and worries about inflation/deflation rates goes along with it. For those with excess money, inflation does encourage investment. Under a steady inflationary pressure, it is irrational to hoard your exce…

The poor and lower middle class do not spend 100% of their money 100% of the time. But nearly 100% of any saved money a poor person has is in the form of raw cash, or non-interest paying bank accounts. The rich can afford to move their money to more stable currencies and commodities in an inflationary environment. They are more likely to have insights and are way less likely to spend a large portion of their wealth y…

Deflation removes some of the incentives for investment, but I agree -- not all of them.

And in practice, to most rational actors a mild deflation is almost indistinguishable from a mild inflation. It's when either of those swing wildly that we have issues. Bitcoin increased in value 11x in the six months from Sep'10 to Feb'11. That would be a major problem if we were all using bitcoins instead of dollars.

Re: Krugman on BitCoin

#142

Post by kbob »

sneak wrote: post #136
kbob wrote: post #121

The next hacker currency should keep Bitcoin's strengths, i.e., decentralization and anonymity, and lose its weakness, the fixed supply. Is anyone working (in public) on the problem of designing a currency that adjusts its supply algorithmically based on appropriate metrics? Sort of a Greenspan-o-matic? I've thought about this for all of 90 seconds, and it seems like the metric might be some combination of transactio…

Most people who use bitcoin don't believe that the fixed supply is a weakness. A lot of us are vastly frustrated at the previous lack of an easy-to-tranact-in pseudonymous INflation-proof currency. The others that were in common use (eGold, Liberty Reserve, and Pecunix) have all become relatively unsafe recently due to their centralized natures. That said, there are bitcoin-network forks out there that remove the max…

How would I find one of the forks?

Re: Krugman on BitCoin

#143

Post by yahelc »

vrotaru wrote: post #118
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…

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. By that logic the best money will be hot potatoes.

You're not wrong. In one prison, for example, cans of Mackerel served as an internal currency precisely because they had no inherent value. http://online.wsj.com/article/SB122290720439096481.html

Re: Krugman on BitCoin

#144

Post by alenlpeacock »

BarkMore wrote: post #104
alenlpeacock wrote: post #92

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 lo…

A counter-argument is that people invest in new enterprises even when the banking real interest rate is positive.

Deflation doesn't remove all incentive to invest, but it does destroy the "gotta keep ahead of inflation" one. I meant to be more explicit about that when I said, "you could still try to invest some of it to try to outperform the gain you get from deflation."

Re: Krugman on BitCoin

#145

Post by shazow »

bdr wrote: post #108

1. 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. Bitcoin is facilitating transactions. The Bitcoin economy is growing, slowly. There are a lot of people, including funded startups, working on making it useful in more cases. It's far, far too early to say that Bitcoin isn't facilitating enough transactions. 2. Bi…

Agreed. Couple more points that may not be obvious:

7. Even if Bitcoin is not a useful currency today, not only is it a novel tech invention but it is also a useful medium of exchange (akin to credit cards). You can buy coins temporarily just so you can buy something from Amazon.com and have it shipped to Africa (as one Bitcoin startup does international shipping for many US-only retailers).

8. Bitcoin could be a useful currency someday, but it might take 200 years. What most people don't realize is that all the properties of Bitcoin (such as the maximum supply or its present growth) can be adjusted with a new genesis block at any point (effectively forking the currency). If the majority of the network clients agrees with this fork, Bitcoin continues under the same name. Side note: I remember hearing that Gavin was going to start a non-profit to help guide (read: sort-of regulate) the official Bitcoin fork. Not sure if this happened, I've been out of the loop.

9. There is no way Bitcoin as it is today could reach any kind of significant scale, purely from the perspective of the protocol. Bitcoin was built with the intention of evolving further down the line. This is part of what makes the technology really interesting.

Re: Krugman on BitCoin

#146

Post by mousa »

mcantelon wrote: post #114
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…

Fiat currencies discourage saving by gradually stealing the value of the saved money via inflation. Theft isn't essential to trade: people will still innovate and exchange without being coerced into doing so by the systematic devaluation of their previous economic contributions.

I don't think there is any reason to encourage saving money. Living within your means, yes, investing, yes, but saving under your pillow, especially if you had a non-inflating currency, isn't good for the economy.

Even if it should be encouraged, it doesn't matter the logic of it, people won't accept making less and less money over time. Non-fiat currency + population increase makes that inevitable.

Re: Krugman on BitCoin

#147

Post by lyudmil »

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.

People kept spending because there were investments available (housing) which outperformed bank interest rates, 401k's, and pretty much everything else. There was no incentive to save because they were saving merely by owning their homes. This happens when there are bubbles. I don't see how the Bitcoin economy is immune to them, so you wouldn't have actually avoided what happened merely by using a different currency.

Re: Krugman on BitCoin

#148

Post by smokeyj »

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…

If a bitcoin clone were to spin-off where inflation was controlled by a set algorithm, would we still consider it to have a limited supply?

Re: Krugman on BitCoin

#149

Post by padmanabhan01 »

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…

But isn't one rule of money that it should at least hold it's value? Isn't that the main reason gold was used before? What is the point of using something as money if it keeps decreasing in value?

Re: Krugman on BitCoin

#150

Post by icebraining »

scott_s wrote: post #80
icebraining wrote: post #75

Earlier quoted context omitted.

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...

Yes, that's why I chose that example. The thing is, currencies are and have always been a commodity with many traders. Bitcoin being treated as a commodity does not prevent it from being a currency.
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