I don't quite buy the analogy. Seems to me that part of the problem was having tokens that could only be exchanged for one thing, and even then at a fixed exchange rate.
Krugman's Baby-Sitting Co-op Explains The Design Flaw At The Heart Of Bitcoin
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Re: Krugman's Baby-Sitting Co-op Explains The Design Flaw At The Heart Of Bitcoin
#12The mistake in the article is that bitcoins can subdivide AND increase in value. Bitcoins are not going to have liquidity crisis, as much as some people seem to want it to.
There won't be a liquidity crisis only if all people dealing with bitcoins will accept to lower their prices in response to the deflation of the currency - this would include workers paid with bitcoin. Not very likely. Would you accept to be paid less and less every year (month, week...)?
Re: Krugman's Baby-Sitting Co-op Explains The Design Flaw At The Heart Of Bitcoin
#13Can someone pro-bitcoin provide a counterpoint to the deflationary spiral criticism? I don't have enough of an understanding in economics to think of one.
Re: Krugman's Baby-Sitting Co-op Explains The Design Flaw At The Heart Of Bitcoin
#14The mistake in the article is that bitcoins can subdivide AND increase in value. Bitcoins are not going to have liquidity crisis, as much as some people seem to want it to.
The problem is that they increase in value, to a degree that the individually rational choice is not to spend them "now". The babysitting coop coupons were effectively subdividable as well: participants could have taken the initiative to say "I'll provide two hours of babysitting for an hour coupon" or "I'll provide 15 minutes of babysitting for 1/2 an hour coupon".
[Edit, for elaboration]
That would be rational when the value of babysitting in the further future (e.g. Valentine's day) exceeds the value of babysitting in the nearer future (e.g, Feb. 11).
Re: Krugman's Baby-Sitting Co-op Explains The Design Flaw At The Heart Of Bitcoin
#15The mistake in the article is that bitcoins can subdivide AND increase in value. Bitcoins are not going to have liquidity crisis, as much as some people seem to want it to.
Subdiving does not increase the overall supply of Bitcoin though. There would be no way in the future to obtain Bitcoin, except by taking it from someone else. Or someone else's hoard, as the case may be. (This is at least briefly touched on in the article)
This is also covered in the book "Debt: The First 5000 Years", when gold-standard and silver-standard monarchies had real problems keeping money in circulation due to the effects of merchants' savings and overall finite supply mixed with the large demand for coin in the Orient.
Re: Krugman's Baby-Sitting Co-op Explains The Design Flaw At The Heart Of Bitcoin
#16Bitcoin can't be debased.
a. That's a bug
b. That's a feature
They certainly were designed to be that way, and that was intended to be in sharp contrast with the conventional way currency is managed.
A more sophisticated argument about bitcoin might go this way:
a. Bitcoin provides an alternative that is both a useful experiment and is edifying in a way that may help keep the managers of currency systems honest.
b. Bitcoin is like releasing an uncontrolled nanotech experiment into the environment that could turn all our money into grey goo, and governments better put in place measures to prevent and eradicate experiments like this.
Re: Krugman's Baby-Sitting Co-op Explains The Design Flaw At The Heart Of Bitcoin
#17This example always amuses me because Krugman guilelessly puts forth the case for central control while glossing over the results:
>>"But eventually the economists prevailed. More coupons were issued, couples became more willing to go out, opportunities to baby-sit multiplied, and everyone was happy. Eventually, of course, the co-op issued too much scrip, leading to different problems ..."Of course, these different problems are just ignored. Krugman never seems to want to discuss whether these new problems, entirely caused by centralized control, are worse than the problem the "alert management" intended to solve in the first place.
It's what makes his oft-use example so excellent. Here you had, presumably, a small group of highly-educated and, presumably, reasonably intelligent folks who couldn't even manage an economy with 150 homogenous players. And yet, we expect much better results when we introduce billions of players and millions of additional variables.
Re: Krugman's Baby-Sitting Co-op Explains The Design Flaw At The Heart Of Bitcoin
#18Can someone pro-bitcoin provide a counterpoint to the deflationary spiral criticism? I don't have enough of an understanding in economics to think of one.
The flaw in the argument is that BitCoin is not (currently) a unit of account (we don't price contracts or goods or services in BTC), and is (nearly) infinitely divisible.
So even if 90% (or 99%) of all BTC is being hoarded, the other 10% (or 1%) can be divided up for use in transactions. That much speculations will cause wild gyrations in value and massive short term volatility, but the people using BTC to transact JUST DON'T CARE.
I really don't care if I'm buying my $1000 flat screen with 1 BTC or 0.0001 BTC. Neither does the merchant. I bought the BTC, sent it to the merchant, and the merchant sold it so quickly that the value didn't change much, and we are happy.
So that's the short term. In the long run, the volatility might decrease as the total market capitalization increases to 10x or 1000x of its current value.
Then we can start to think about using it as a unit of account. If we do, we may enter a deflationary spiral, but by then BTC will already be used in an enormous swath of the economy.
So I interpret Krugman's argument not so much that BTC CAN'T take over the world, but that it SHOULDN'T take over the world. (I'm not sure if I agree. Many economists have been arguing over this point for decades, and I'm not smart enough to sort it all out.)
Re: Krugman's Baby-Sitting Co-op Explains The Design Flaw At The Heart Of Bitcoin
#19In other words, when people run out of physical goods to trade, they will start trading IOUs, at which point inflation has occurred within your economy whether you intended it to or not.
Re: Krugman's Baby-Sitting Co-op Explains The Design Flaw At The Heart Of Bitcoin
#20The mistake in the article is that bitcoins can subdivide AND increase in value. Bitcoins are not going to have liquidity crisis, as much as some people seem to want it to.
If/when bitcoins ever become an important currency they will have all the same problems as other currencies, and others unique to being bitcoins. E.g. central banks will try to manipulate them, governments will tax and regulate them, and people will speculate on them. Being able to subdivide and increase in value are not attributes unique to bitcoins. Oh, and the article DOES address this exact point.
> Being able to subdivide and increase in value are not attributes unique to bitcoins.
I didn't claim that.
> Oh, and the article DOES address this exact point.
No, they always assume the value of a coin remains constant when discussing subdivision.