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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

#101

Post by pjzedalis »

ars wrote: post #45
pjzedalis wrote: post #37

Coupons are not currency. They were trading coupons of 1 hour babysitting to save from spending real currency on hours of babysitting.

Of course a coupon is a currency. What do you thing a currency is? It's a store of value.

Just because something has value does not make it a currency. If that coupon ONLY gets you a reduction in price off something then its a discount. Here is another tidbit that makes it not a currency: coupons are intended to not be redeemed more than once.

If only one person can ever use it then it fails at its intention of goods exchange. It's not currency.

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

#102

Post by pjzedalis »

One thing that strikes me is the person with the most coupons happens to be the person with the least amount of need for the coupons. Therefore they will never redeem them and eventually everyone runs out.

A true currency (and Bitcoin if its a true currency) allows the most avid babysitter to get other things with it instead of what she already has a surplus of.

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

#103

Post by mcantelon »

pyoung wrote: post #80
mcantelon wrote: post #44

Earlier quoted context omitted.

I think Bitcoins role as a store of value that can be used for payments makes for a pretty good tool. Like gold, except able to have ownership transferred, even in small micropayment-sized portions, without a cost incurred.

I agree that this is the appropriate way to look at bitcoin. It is not so much a currency at the moment, it is more like an asset, like stocks, bonds, or gold. If we assume bitcoin is an asset, we are not seeing deflation per se, we are seeing an increase in value. A store of value that can be anonymously transferred and exchanged without significant costs has some inherit value in society. The only problem with bitc…

>it's price is entirely determined by speculation and nothing else

Its price is based on the work required to make the coins and the properties of a minted coin (can't be forged, etc). The coin has virtual properties, but they're still useful properties.

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

#104

Post by white_devil »

ars wrote: post #43
white_devil wrote: post #29

Earlier quoted context omitted.

> provide a counterpoint to the deflationary spiral criticism? Is that the retarded idea that no one will buy anything if prices keep falling? Look no further than computers, cell phones and all manner of electronic gadgets. Their prices keep going down, but everyone keeps buying them. If you need/want something now, you'll buy it now. Here's a summary of the article: "The State-Controlled Mainstream Media paints a g…

Why do you think they constantly make more gadgets - always at the same price point? And they work really hard to make sure you want the new one. In some future world where no one wants the new gadget the price of the old one will stop falling!

True, some gadgets stay at certain price points, but you keep getting more and more value for your money. We could rephrase "electronics getting cheaper" as "your purchasing power towards electronics increasing", if that's better.

> In some future world where no one wants the new gadget the price of the old one will stop falling!

What's the point here? It's not like the old gadget would get sold at the same price for ever and ever.

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

#105

Post by white_devil »

Jtsummers wrote: post #50
white_devil wrote: post #29

Earlier quoted context omitted.

> provide a counterpoint to the deflationary spiral criticism? Is that the retarded idea that no one will buy anything if prices keep falling? Look no further than computers, cell phones and all manner of electronic gadgets. Their prices keep going down, but everyone keeps buying them. If you need/want something now, you'll buy it now. Here's a summary of the article: "The State-Controlled Mainstream Media paints a g…

Not a downvoter (can't, probably won't when I can), but your tone is unnecessarily aggressive and dismissive, especially considering GP just wanted a rebuttal and made no claims of their own.

> your tone is unnecessarily aggressive and dismissive

I take it you're referring to the word "retarded"? It was meant to criticize the idea of a "deflationary spiral", not the poster.

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

#106

Post by johnny4000 »

maxerickson wrote: post #76
johnny4000 wrote: post #53

Earlier quoted context omitted.

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 aweso…

If you are going to insist on a deflationary economy, you have to admit the possibility of wages going down over time. For a cartoon example, with high enough deflation and a less than perfect job market, that debt might represent more years of work when you are 35 than it did when you were 25.

Wages in what currency? Bitcoins or USD or? If wages in USD decrease by a huge amount and I get paid in Bitcoins, I can eventually hire more people for a cheaper amount if I pay them in USD.

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

#107

Post by maxerickson »

johnny4000 wrote: post #106
maxerickson wrote: post #76

Earlier quoted context omitted.

If you are going to insist on a deflationary economy, you have to admit the possibility of wages going down over time. For a cartoon example, with high enough deflation and a less than perfect job market, that debt might represent more years of work when you are 35 than it did when you were 25.

Wages in what currency? Bitcoins or USD or? If wages in USD decrease by a huge amount and I get paid in Bitcoins, I can eventually hire more people for a cheaper amount if I pay them in USD.

Wages in bitcoin.

But I really want to talk about it in terms of units of productivity. If the value of bitcoin goes up over time, then each unit of productivity will be worth less bitcoin over time. Meaning that relative to units of productivity, a debt will increase.

In your first example, you relied on the assumption that your boss or customers or whatever would not take the current BTC value of your productivity into account. In your new example, you are relying on the people you hire not taking the value of their labor in BTC into account. Neither of those are reasonable assumptions.

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

#108

Post by drcode »

podperson wrote: post #95
drcode wrote: post #20

Earlier quoted context omitted.

> 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.

> There are some objections to this: for example, that since each bitcoin can be infinitely divided into components, the money supply can keep growing. But that’s not related. If you have a $10 bill and I replace it with ten $1 bills, do you feel richer? This seems to address the point to me. If the supply of dollars is constrained (liquidity trap) then deflation does NOT make people happier.

If I have ten $1 bills and they are each worth $10 of previous spending power, I would ABSOLUTELY feel richer.

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

#109

Post by drcode »

ars wrote: post #90
drcode wrote: post #83

Earlier quoted context omitted.

Exactly- So the claim that deflation (i.e. decreasing prices) will hurt liquidity is false.

How did you manage to get that from what I wrote? Of course deflation hurts liquidity - if you have less money, there is less floating around for people to use.

Less money in denomination, but the total purchasing power isn't less.

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

#110

Post by mncolinlee »

drcode wrote: post #87
mncolinlee wrote: post #42

Earlier quoted context omitted.

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…

If deflation is (let's say) 4%, why wouldn't people be greedy and let people borrow it at 6% or something?

1. Deflation isn't fixed. Lenders have to make a guess about the spectrum of possible future rates of deflation, inflation, or even the abandonment of the currency.

2. Lenders seek profit, not revenue. 6% interest on 4% deflation is hardly greedy. You're ignoring the risk/reward ratio. Deflation causes defaults because existing loan costs become more onerous. 6% on 4% would almost certainly be a net loss after defaults. The high risk of default during deflation is part of why interest rates hit 18% in the 1980s.

3. Deflation is typically a product of most people having less access to your currency. Debtors would make an estimation that they could afford your loan at a lower-priced Bitcoin (in currency and labor costs). They'll be more likely to default when the currency is more scarce either due to the worse exchange rate of money or exchange rate of labor.

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