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Bitcoin and positive vs. normative economics

krugman.blogs.nytimes.com

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Re: Bitcoin and positive vs. normative economics

#31

Post by mortenjorck »

Krugman is to Bitcoin as Ebert was to video games.

The central failure of Krugman's understanding of cryptocurrencies is in the value of mining. It's not simply throwing energy away into solving useless math problems; it's spending energy to create infrastructure. That infrastructure is the part that does have intrinsic value, that can be used for something else in the same way gold can be made into useful things. Look at Bitmessage or any of the other projects built on top of Bitcoin. These form the floor Krugman can't seem to find.

Re: Bitcoin and positive vs. normative economics

#32

Post by atmosx »

Krugman is right, I agree with him 100% on this, but almost every time I tried to make any sensible argument about bitcoin with people actually holding bitcoin, I hit a wall.

Most people confuse currencies with assets, storage-medium with exchange, etc. While at the same they are just hoarding.

I think that BTC will stick around because it has some unique qualities that are requested by the market such as partial anonymity, speed and size (a USB can contain whatever amount of USD).

But it has some serious flaws and as a currency is clearly failed. It is a libertarian's dream, but I don't think that the US or DE or RU government can't monitor whoever moves money in and out of the BTC blockchain.

Re: Bitcoin and positive vs. normative economics

#33

Post by mapgrep »

natrius wrote: post #11

Ignore the flamebait headline. The distinction Krugman makes between positive and normative economics is a useful one. On the positive side, I think Krugman and DeLong are overestimating the strength of the floor for the value of a dollar. Hyperinflation would make it impossible for the Federal Reserve to buy up enough dollars to stabilize the value of the currency. Sure, you can pay taxes with them, but the governme…

>Hyperinflation would make it impossible for the Federal Reserve to buy up enough dollars to stabilize the value of the currency

Even if this is true, where is the evidence that we're in imminent danger of hyperinflation? Despite mounting public debt, U.S. inflation has remained incredibly low since the start of the financial crisis four years ago, as has the interest rate that must be paid by the government to issue new debt.

From what I can tell, we have on the one side a dollar that has endured as a value store and medium of exchange for hundreds of years, and which has proven remarkably resilient (valuable) by any objective measure throughout the worst economic implosion since the Great Depression (which the dollar also survived). On the other hand we have Bitcoin which is intriguing in many ways but which has demonstrable volatility even just in the short span of its existence. And which, as a feature, is not backed (in the hard economic sense) by any nation or bank. I mean it's cool and all but I see where Krugman is coming from.

Re: Bitcoin and positive vs. normative economics

#35

Post by hendzen »

bdcravens wrote: post #6

1) Bitcoin mining has a pretty horrible carbon footprint. ("but so does ..." doesn't eradicate this argument) 2) similar to the author's point that advocates can't tell the difference between "store" and "medium" of value, I can't tell you the number of arguments I've gotten in with people who equate a "store of value" to be the same thing as the "increase in value" 3) It's a 1% wet dream. Make money, potentially hid…

Actually, for your first point, you have to compare the carbon footprint of bitcoin to the carbon footprint of the alternative. What is the carbon footprint of all the different transaction processing systems run by Mastercard, Visa, Amex, etc? What about if you add in the cost of the massive mainframes that handle ACH transfers? The cost of printing millions of archaic paper checks?

I'm not saying bitcoin replaces all those things (it certainly doesn't), but it aims to.

Re: Bitcoin and positive vs. normative economics

#36

Post by ubernostrum »

natrius wrote: post #27
zenocon wrote: post #20

Placing a ceiling on the value of gold is mining technology, and the prospect that if its price gets out of whack for long on the upside a great deal more of it will be created. Placing a ceiling on the value of the dollar is the Federal Reserve’s role as actual dollar source, and its commitment not to allow deflation to happen. Placing a ceiling on the value of bitcoins is computer technology and the form of the has…

He claims that the ability to pay taxes in dollars and the Federal Reserve's willingness to buy up dollars to maintain their value places a floor on the value of the dollar. I disagree. In a crisis of confidence in the dollar, both factors would fail.

In a crisis significant and widespread enough to crash the dollar or any other government-backed currency you'd like to pick on, it seems likely that there would also be significant disruption to electrical and communication networks, which does not suggest BitCoin is a great thing to hold for that situation.

(a similar point is often raised against gold, in that a post-economic-apocalypse world would not immediately have the infrastructure to verify claims like "this is one ounce of pure gold", meaning gold's utility as a medium of exchange would not be as high as suspected by people who buy it to hedge against such apocalypses)

Re: Bitcoin and positive vs. normative economics

#38

Post by seiji »

dbla wrote: post #17
smtddr wrote: post #9

>>BitCoin looks like it was designed as a weapon intended to damage central banking and money issuing banks, with a Libertarian political agenda in mind—to damage states ability to collect tax and monitor their citizens financial transactions. So basically it brings an ability to the middle-class that normally only the top 1% have. We know wealthy people use tax loopholes(and a few of them, laundering) and... why do…

This may be the end result, but it seems to me like the more direct (but not necessarily simple) solution to this problem is to close up those loopholes for the rich. The government does need to collect taxes after all, and if nobody is paying then we've created another problem.

If r/bitcoin could speak, it would collectively say: "All tax is theft. It is our job to stop being stolen from. All money belongs to me for the benefit of myself. I am all that matters in society."

Re: Bitcoin and positive vs. normative economics

#39

Post by j2labs »

This is an easy one to understand.

Krugman was a proponent of mass inflation, aka. helicopters of money, as a solution to the credit crisis. Bitcoin makes it basically impossible to manipulate the money supply the way the Fed has done to navigate the 2008 crisis.

Krugman sees Bitcoin as a threat to the central banks ability to stabilize the economy.

Re: Bitcoin and positive vs. normative economics

#40

Post by wcummings »

ubernostrum wrote: post #30
ahomescu1 wrote: post #22

Earlier quoted context omitted.

Actually, I think that if a physicist/chemist came out with unproven theories or opinions (the original article is nothing more than an opinion), the community would react pretty much the same. Physics and chemistry (and economics as well) have proofs and experiments, and this post doesn't offer either of those. It makes perfect sense to dismiss it if you disagree with him, since he doesn't really say anything concre…

He poses a question: To be successful, money must be both a medium of exchange and a reasonably stable store of value. And it remains completely unclear why BitCoin should be a stable store of value. And then says he hasn't been able to get an answer to this question, that the BitCoin enthusiasts he's talked to have mostly avoided trying to answer the question, and that he has reason to suspect that BitCoin gets prom…

The answer I've heard is that Bitcoin has utility as a payment network somewhat independent of its usefulness as a value store. This is most of how Bitcoin is used currently (save speculation)
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