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Krugman on BitCoin

krugman.blogs.nytimes.com

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Re: Krugman on BitCoin

#171

Post by stevenwagner »

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…

Thats it? Your big punch on deflation is the "psychological effect"? You seem to fundamentally not understanding math and have an emotional attachment to a particular scale of measurement.

Re: Krugman on BitCoin

#172

Post by stevenwagner »

DennisP wrote: post #156
johnthedebs wrote: post #100

Earlier quoted context omitted.

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 (som…

Rationally, people should wait as long as possible to buy tech because they'll get more later. Instead, they buy it at a furious rate. Why is that?

I know! The iPad is going to be so much cheaper in 10 years. Im waiting.

Re: Krugman on BitCoin

#173

Post by tptacek »

sprovoost wrote: post #94
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 t…

A slow, predictable devaluation in the currency encourages individuals not to store large amounts of value in the currency. It doesn't simply encourage people to spend; it also encourages people to allow better-positioned entities to allocate capital, which is why new business ventures don't need to go door-to-door to fund new factories. Individuals are crappy at allocating capital, because they have small amounts of it and are too busy mastering Dentistry or Architecture to build expertise in risk management.

Unsustainable debt is an orthogonal issue. We've encouraged unsustainable debt not by allowing our currency to inflate, but by failing to regulate lenders and by offering them incentives to ignore risk management.

Again, though: this "is a little inflation good, and is a little deflation bad?" thing is a fake controversy that dignifies Bitcoin. Bitcoin isn't a currency; it's a gambling game powered by a distributed transaction system that may or may not on any day function well enough for two parties to exchange dollars for off-label hosting services without either one losing their shirt.

Re: Krugman on BitCoin

#174

Post by zach »

wmf wrote: post #165
zach wrote: post #106

Earlier quoted context omitted.

Wow, that's an excellent point. That doesn't happen easily with gold. People retrieve gold from ships sunk hundreds of years ago. Actually, is there an efficient way that physical gold or other precious metals can be intentionally destroyed or put beyond use? Has anyone tried to use this technique to corner a market? What would happen if Hugo Chávez actually got his hands on 211 tons of actual gold and announced he h…

Actually, is there an efficient way that physical gold or other precious metals can be intentionally destroyed or put beyond use? Has anyone tried to use this technique to corner a market? In Goldfinger , the eponymous villain tried to irradiate all the gold in Ft. Knox with a dirty bomb, making it worthless.

Oh wow, how could I miss that? Well, now it comes out that I've never seen Goldfinger. And I've listened to all the Bond discussions with John Gruber on The Talk Show. Shame on me!

Re: Krugman on BitCoin

#175

Post by joelhaus »

sethg wrote: post #61
danenania wrote: post #42

Earlier quoted context omitted.

"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?

If houses got cheaper every year, very few people would want to buy them, and people stuck with mortgages would have a powerful incentive to walk away from them. If cars got cheaper every year, then people would put off buying new cars for longer. If gold got cheaper every year, then a lot of gold coins would be dumped on the market. If everything got cheaper every year, then people with money in the bank (or under t…

> This would lead to factories reducing their production and laying off employees

Trade imbalances resulting from an economy run on bitcoins would also decimate most domestic production, so sethg's statement is doubly true. It's the same reason you hear members of congress railing against China's currency peg that artificially deflates the yuan; it makes Chinese exports cheaper to the rest of the world.

Re: Krugman on BitCoin

#176

Post by sesqu »

2arrs2ells wrote: post #157
padmanabhan01 wrote: post #149

Earlier quoted context omitted.

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?

If money is decreasing in value, it gives people a huge incentive to do something with it - buy something or invest. As long as the decrease to the value is small (1-3%) and predictable, this is a good thing .

I don't really buy this argument. People invest to increase their capital, not to stop it from decreasing. When inflationary pressure is actually tangible, money becomes a hot potato that no one wants, and poof, there goes the economy in a blaze of hyperinflation.

Arguing that inflation is good is tantamount to arguing that illiquidity is good. If I were to argue for inflation, I would go with some other angle, like that capital should evaporate after a lifetime.

Re: Krugman on BitCoin

#177

Post by wmf »

shazow wrote: post #145
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 use…

7. You can buy coins temporarily just so you can buy something...

This is so kludgey that I don't see it as a benefit, and IMO touting it as a benefit just makes Bitcoin look worse.

8. all the properties of Bitcoin can be adjusted if the majority of the network clients agrees with this fork

I suspect that there will be many Bitcoin forks, and none of them will take off due to a combination of path dependence (i.e. kooks sticking with "the true Bitcoin") and the paradox of choice.

Re: Krugman on BitCoin

#178

Post by JoachimSchipper »

tptacek wrote: post #168
JoachimSchipper wrote: post #166

Earlier quoted context omitted.

I wouldn't be so sure that the (original) Bitcoin people are running a pump-and-dump scam - there is very little evidence either way. And there are plenty of people who genuinely seem to believe that Twitter causes and/or wins revolutions: love of technology, libertarianism and something we'll call optimism do occur together, and cypherpunks are not the least vulnerable.

To be clear: I'm not saying the original design was a scam. Only its realization as a real system people can interact with and spend money on. This whole system is morally no different than Zynga tomorrow setting up a system to trade options on Farmville tomatoes.

To be clear: I think that some people really do believe that Bitcoin is going to overthrow the monetary system and free us all from the evil government. I also think that quite a few more people believe that Bitcoin can only go up (designed for deflation, right?)

"Bitcoin is a scam" is simply not enough to explain stuff from the Bitcoin bulletin to open source GPU mining software - hard work by obviously capable people, and not even remotely the most effective way to become rich.

Mind you, I think the "true believers" are incorrect, sometimes naive and occasionally downright stupid; but declaring them "evil" leaves quite a few unanswered questions. [EDIT: Even if the speculators are probably in the majority.]

(Also, I wouldn't be surprised if EVE had a foostone contract future market...)

EDIT: also, there was nothing wrong with the system design. A bit uninspired, maybe; current research involves zero-knowledge exchanges and the like.

Re: Krugman on BitCoin

#179

Post by stevenwagner »

ajross wrote: post #127
johnthedebs wrote: post #100

Earlier quoted context omitted.

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 (som…

Exactly. In the bitcoin world, you make more money by not investing the money you have and instead holding onto it in the hopes that you'll be able eventually convert it to a stable currency in the future. That's a disaster. Who, for example, is going lend their precious bitcoins to a risky startup when they can just sit on them and watch them appreciate?

Finance 101, its called hedging. You can invest in dollars, euros, bitcoins, google, gold, food or whatever. They all have relative leverage and are all investments. Purchasing bitcoins means to investing in a share of the bitcoin economy. Its a startup currency which has never happened before. The increase in trading value has created an enormous amount of funding for bitcoin startups.

Re: Krugman on BitCoin

#180

Post by padmanabhan01 »

tptacek wrote: post #155
padmanabhan01 wrote: post #149

Earlier quoted context omitted.

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?

http://3.bp.blogspot.com/-_KuUh8iKx_c/TX_URc8gLpI/AAAAAAAAA6... Please cite a source on this "one rule of money" you're thinking of?

http://wiki.answers.com/Q/What_are_the_four_properties_of_mo...

says one of the properties of money is that it has to be a 'store of value'.

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