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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

#51

Post by andylei »

liber8 wrote: post #17

This 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…

i think its ironic that you're putting forth the case for unmanaged economies while glossing over the results.

i think most economists (including Krugman) would agree that managing an economy is hard, and that oftentimes, the people in charge don't get it right. but that doesn't mean the alternative is better.

in this specific case (bitcoin), the alternative to managing the money supply centrally is a fixed supply of money. in an environment where the economy (the gross output of the market) is growing, that leads to deflation. krugman points out that deflation slows down economic activity, possibly catastrophically. do you disagree?

Re: Krugman's Baby-Sitting Co-op Explains The Design Flaw At The Heart Of Bitcoin

#52

Post by rayiner »

dmm wrote: post #49
rayiner wrote: post #34

Earlier quoted context omitted.

Allowing the price of baby sitting to float relative to what? It's babysitting all the way down. That's one of the great things about this hypothetical, is that it forces you to think of the underlying barter transactions instead of misleading yourself into treating the currency as having intrinsic value.

The price of an hour of babysitting on a random day in April is 1 unit. The price of an hour of babysitting on New Years eve is 5 units. On some nights the demand for babysitting is higher. On those nights the price is higher. Does that make sense?

How does that fix the problem of people hoarding coupons by not going out, decreasing the underlying economic activity that creates the need for the coupons in the first place?

Re: Krugman's Baby-Sitting Co-op Explains The Design Flaw At The Heart Of Bitcoin

#53

Post by johnny4000 »

ph0rque wrote: post #13

Can 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.

Seems to me it's an argument for the status quo, so if you are say Warren Buffet it is a vary valid concern. If on the other hand you just graduated undergrad and had a huge debt and your wage was actually set in bitcoins this would be great for you because the cost of paying off your dept would be from your bitcoin point of view spiraling to zero, as would the cost of everything else. That sounds like a pretty awesome situation to be in.

Be wary of financial explanations, because in most cases when a business person or economist says its good, they either mean its good for keeping things stable, its good for the elite, or its good for the average person, all of which might not be you. For example, you might see someone on CNBC saying they need to make sure they don't have a disorderly default, but really if you are in a position to take advantage of that temporary disorderly market you could gain from that.

Re: Krugman's Baby-Sitting Co-op Explains The Design Flaw At The Heart Of Bitcoin

#54

Post by smithzvk »

unoti wrote: post #33
wwweston wrote: post #28

Earlier quoted context omitted.

Float compared to what? The price of an hour of babysitting was always 1 because the only thing on the exchange is an hour of babysitting. I suppose you could argue some hours of babysitting are more valuable than others, and people could negotiate, say, 4 hours for 5 coupons or vice versa. It's not clear this either (a) wasn't already done on some ad hoc basis (I'd imagine if it was agreeable to both parties, it'd p…

Float compared to supply and demand in a free market. Instead of issuing 1-hour coupons, they should have issued an arbitrary currency, say, Shillings. Then buyers can request babysitting paying at 1 shilling per hour, and sellers could say that they want 1.3 shillings per hour. The value of the currency needs to float with supply and demand. The whole argument in the article is a pathetic straw-man. The value of bit…

Yes. This article gives this other little nugget.

> If you have a $10 bill and I replace it with ten $1 bills, do you feel richer?

If I exchange a $10 bill for ten $1 bill, I don't feel any more wealthy. However, if my $10 buys ten times as much stuff, then I would feel 10 times more wealthy.

Re: Krugman's Baby-Sitting Co-op Explains The Design Flaw At The Heart Of Bitcoin

#55

Post by james1071 »

dmm wrote: post #5

To me it seems the problem with the Babysitting coop was price fixing. The price of of an hour of babysitting was always 1. If the price of an hour of babysitting was allowed to float you would not have the shortages.

There was only one good, so the price cannot float

Re: Krugman's Baby-Sitting Co-op Explains The Design Flaw At The Heart Of Bitcoin

#56

Post by wmf »

tlrobinson wrote: post #40

"Now, it’s worth noting that this fatal flaw of Bitcoin is not a fatal flaw for all cryptocurrencies or algorithmic currencies. One can imagine a Bitcoin-like currency with a smart algorithmic central bank (indeed, Bitcoin does have an algorithmic central bank–just an economically illiterate one)." It's also worth noting that it's theoretically possible for Bitcoin's "monetary philosophy" to change over time. If a ma…

Realistically, Bitcoiners can't even agree to fix unspendable UTXOs. I can't imagine that they would ever agree to devalue their own holdings.

Re: Krugman's Baby-Sitting Co-op Explains The Design Flaw At The Heart Of Bitcoin

#57

Post by _lex »

His argument seems to say that the LIQUID supply of bitcoins is shrinking because people are hoarding them. You can make the same argument for stocks or anything else that is traded for cash, but it's wrong. Everybody will have a price that they're willing to sell at - it's the fundamental idea underlying every exchange market.

Re: Krugman's Baby-Sitting Co-op Explains The Design Flaw At The Heart Of Bitcoin

#58

Post by Danieru »

rayiner wrote: post #34
crazygringo wrote: post #26

Earlier quoted context omitted.

Well, right. They added more coupons, which fixed the problem. But I don't see how that's significantly different from allowing the price of babysitting to float -- I know doubling the number of coupons isn't exactly the same as making them half as valuable, but it's similar. But since bitcoins simply adjust in value according to market demand, I, as well, don't understand how Krugman's story applies to bitcoin. If e…

Allowing the price of baby sitting to float relative to what? It's babysitting all the way down. That's one of the great things about this hypothetical, is that it forces you to think of the underlying barter transactions instead of misleading yourself into treating the currency as having intrinsic value.

"I will babysit for you 2 hours if you babysit 1 hour for me today".

For the coop this would work by paying extra 30 minute coupons. e.g: one hour of baby sitting on saturday might be paid with three 30 minute vouchers. Thus encouraging buyers to prioritize weekday outings.

No idea if this would solve the liquidity though.

Re: Krugman's Baby-Sitting Co-op Explains The Design Flaw At The Heart Of Bitcoin

#59

Post by kirian »

A slightly related article I read recently about how should we evaluate the claims of people much smarter than ourselves. i.e. in this specific article the example is if Krugman makes some claim about economics should we just accept them as he is probably leagues ahead in terms of knowledge and expierience in the subject.

http://theumlaut.com/2013/03/13/paul-krugman-is-brilliant-bu...

Re: Krugman's Baby-Sitting Co-op Explains The Design Flaw At The Heart Of Bitcoin

#60

Post by danielweber »

ars wrote: post #39
1053r wrote: post #18

Earlier quoted context omitted.

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…

That is not a flaw in the argument - that is a flaw in your understanding of the argument, which makes you think this is a valid rebuttal. Money is supposed to represent value. Not to actually be value. There are new humans arriving in the world all the time. And new resources are being mined from the earth, and created intellectually all the time. If the money supply does not match these new things then the currency…

You need to issue more currency so that the sum total of money available is equal to the sum total of value in the world. Any currency that doesn't do that fails.

I think many of the bitcoin fans reject this. They want to be able to hold (say) 1/1000th of the world's wealth, and be able to keep on holding 1/1000th of the world's wealth as long as they don't spend any of their hoard.

It's like trying to create a financial crisis because you expect to be on the right side of it.

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