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

forbes.com

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

#61

Post by ph0rque »

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.

Thanks for all the replies made in the sibling comments and their descendants.

To me it seems that for the time being (e.g. the next 50? 100? years), as long as we have a currency alternative to bitcoin such as USD, these problems can be avoided by just switching currencies to be able to buy/sell/borrow/invest in, as long as other parties agree to it.

Or am I missing something?

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

#62

Post by wmf »

mncolinlee wrote: post #42
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…

Unfortunately, deflation is not so simple a concept. If your currency quickly deflates and hoarders EXPECT it to deflate, no one will be interested in lending and the economy will suffer. Lending is not an optional feature in a modern economy. You need some level of lending to have credit balances with merchants or investment in stocks and bonds. An economy without lending can take few risks on innovation, such as YC…

This is a bit of a nit, but the real exchange(s) does not buy or sell anything; it just matches orders. So you should probably say "...a liquidity crisis when everyone attempts to sell at once and the noobs stop buying".

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

#63

Post by crazygringo »

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.

That's only if you want the currency to maintain a stable value, neither inflationary nor deflationary.

Alternatively, the currency will have deflation. It's not obvious that that necessarily implies "failing".

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

#64

Post by CleanedStar »

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…

The economy is already centrally controlled. A few centuries ago, much of the world, even the outer reaches of Europe, had mostly independent, semi-nomadic people living on it - including the land the USA is on.

Now the vast majority of people are wage slaves for a very tight group of intermarrying heirs - the Waltons, the Koches, the Sauds, the Mars's, the Johnsons, the Newhouses, the Rockefellers etc.

From 1993 to 2008, the US unemployment rate never hit what the current rate is - 7.6% unemployment. Most of those people currently have no control of the economy, or their own lives. The idea that the government's protection of this central racket may lessen is of little concern to most of these unemployed.

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

#65

Post by dmm »

rayiner wrote: post #52
dmm wrote: post #49

Earlier quoted context omitted.

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?

If nobody goes out then the price of babysitting approaches zero: everyone want to babysit, no one wants to go out.

Once the price is 0.0001 units, why not go out? The benefit of staying in is minimal.

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

#66

Post by dmm »

james1071 wrote: post #55
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

Babysitting on April 5th is a different good than babysitting on December 31st.

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

#67

Post by hatu »

forgingahead wrote: post #6

In 1998, Krugman also predicted that "by 2005 or so, it will become clear that the Internet's impact on the economy has been no greater than the fax machine's." http://web.archive.org/web/19980610100009/www.redherring.com...

Funny how the title of the article is "Why most economists' predictions are wrong." I think he's really out of his element, making more technological than a economical prediction.

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

#68

Post by Jtsummers »

dmm wrote: post #65
rayiner wrote: post #52

Earlier quoted context omitted.

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?

If nobody goes out then the price of babysitting approaches zero: everyone want to babysit, no one wants to go out. Once the price is 0.0001 units, why not go out? The benefit of staying in is minimal.

And once everyone is going out, no one wants to stay in because the value (in coupons) of staying in is hardly worth (paraphrasing a member of the group) tolerating other people's children.

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

#69

Post by unabridged »

Why is Krugman being thought of as a genius in predicting market trends and pricing assets? He has never proven himself in this way, he does not manage money, he is only rich from book sales. Krugman is just a politician who promotes his own opinion of how the US economy should be handled.

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

#70

Post by mrb »

Another article that gets it wrong. sigh

"I’ve also been told that this is only valid if the entire world is on Bitcoin"

So far the author is right. The whole world does not run on Bitcoin only, therefore the arguments against Bitcoin do not apply. But here is where he gets it wrong:

"but if you think about the world today, that’s not true. There are plenty of currencies out there, and the supply of some of them is too low, and that hurts the people who use that currency. The fact that the dollar exists doesn’t prevent the yen from being too strong."

The author does not cite examples of people hurt by a currency when a supply is low, because he is wrong: there are no such examples.

I don't know why he cites the Yen. The Japanese economy is not that bad. It is not that great either. But it is doing okay. Therefore if Japan is okay with a deflationary currency, why would not Bitcoin be okay too?

Or someone may cite the example of the failure of the gold standard in the US in the 1960s, but it would be incorrect. The gold standard failed because the US Federal Reserve continued to increase notes in circulation, while not replenishing gold reserves, which triggered all sorts of bad consequences, see [1]. By contrast, in Bitcoin it is algorithmically impossible to increase "notes" (coins) in circulation beyond the limit of 21M coins.

[1] See http://mises.org/daily/3325

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