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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

#181

Post by greyman »

paul wrote: post #159

I'm most bullish on bitcoin when I read articles such as this one, and most skeptical when I read the thoughts of the bitcoin believers. It's truly the most interesting technological development in years, if only because it reveals how little anyone really understands money or economics. Here's another interesting (though imperfect) way of thinking about bitcoin: it's a decentralized corporation, where bitcoins are o…

I am not a libertarian and do not have a political agenda, but it is imaginable that certain parts of the government could be replaced with the structure like this one.

I don't know how the transition could happen, but at the end, the mining in the network will be done by citizens, bitcoins will be named "bitvotes", and every citizen will mine those bitvotes, or they could be distributed fairy (one bitvote to each citizen). Then, the citizens could vote about anything with those bitvotes, and the bitcoin technology ensures that the voting is provably fair and verification of the correct voting results doesn't require any third party.

But again, this is not my agenda and I don't know if it would be good; I just say that the bitcoin technology invention allows this to happen.

Re: Bitcoin and positive vs. normative economics

#182

Post by dnautics »

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…

"our society will have to figure out how to make the economy work with endemic deflation"

So, 1600-1900 in the US (minus wars which were incredibly inflationary but always temporary in that era) not enough for you?

The counterargument is this: In the era of central banking we have struggled to figure out how to make the economy work with endemic inflation. And it's failing. The two eras where the gap between the rich and the poor widened in a protracted, long-term fashion, have been in the aftermath of FDR's great dollar devaluation and after Nixon closed the gold window. 1972 was the last year the rich-poor gap was closing.

Re: Bitcoin and positive vs. normative economics

#183

Post by gnaritas »

kordless wrote: post #124
sans-serif wrote: post #78

Earlier quoted context omitted.

No, the floor is unrelated to the energy put into mining. The intrinsic value of Bitcoin is the ability to facilitate financial transactions. Brinks' entire CIT vehicle business is based upon just a subset of this function, and we can agree their value is not zero.

Bitcoin is able to facilitate transactions because of the power put into the computers running the Bitcoin network. Mining Bitcoin provides the functionality for validating the block chain. So, power into the network provides the value of security.

Bitcoin happens to currently use power that way, other coins don't; mining is not the only way to facilitate transactions and facilitating transactions is where the value is, regardless of the method used to do it. Power is but one of several options so the value can't be there.

Re: Bitcoin and positive vs. normative economics

#184

Post by natrius »

paul wrote: post #159

I'm most bullish on bitcoin when I read articles such as this one, and most skeptical when I read the thoughts of the bitcoin believers. It's truly the most interesting technological development in years, if only because it reveals how little anyone really understands money or economics. Here's another interesting (though imperfect) way of thinking about bitcoin: it's a decentralized corporation, where bitcoins are o…

My current answer to that question is that any industry that relies on trust could be structured in this way. If DNS were implemented on a blockchain, purchasing that chain's currency would be betting on increasing demand for that chain's transactions, domain names. What other industries are fundamentally about trust?

Re: Bitcoin and positive vs. normative economics

#185

Post by erikpukinskis »

peterjancelis wrote: post #163
paul wrote: post #159

I'm most bullish on bitcoin when I read articles such as this one, and most skeptical when I read the thoughts of the bitcoin believers. It's truly the most interesting technological development in years, if only because it reveals how little anyone really understands money or economics. Here's another interesting (though imperfect) way of thinking about bitcoin: it's a decentralized corporation, where bitcoins are o…

Exactly. Bitcoin is the first autonomous corporation.

The next thing we need is an autonomous web host.

Re: Bitcoin and positive vs. normative economics

#186

Post by Articulate »

wdr1 wrote: post #167
Articulate wrote: post #152

It is deplorable that he used the word "evil" to describe Bitcoin. He fails to point out that Bitcoin is a system and of course it is possible for individuals to use this system to achieve some personal nefarious goals; but we have literally watched banks knowingly gamble huge sums of money in the centrally banked system and the whole system came crashing down. The decentralized nature of Bitcoin will not allow a few…

> It is deplorable that he used the word "evil" to describe Bitcoin. Krugman is clearly an intelligent man, but in his public writing he has a habit of declaring things he doesn't like as "evil." Given we know he's not stupid, I assume it's to increase the attention he receives. Based on the re-shares from my left-of-center friends, it tends to work.

A few minutes after I posted that, I regretted that my comment focused on that. Krugman wrote another article implying that Bitcoins were "barbarous" and likened them to digging up mostly useless gold. I feel like he must think Bitcoin is serious because he is writing about it regularly- I wish I had focused more on his economic theory in my comment... maybe next time.

Re: Bitcoin and positive vs. normative economics

#187

Post by gnaritas »

mortenjorck wrote: post #31

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. Lo…

> The central failure of Krugman's understanding of cryptocurrencies is in the value of mining.

Mining is not that valuable, there are other ways to do it that don't waste so much energy.

> It's not simply throwing energy away into solving useless math problems

Yes it is, since there are solutions like proof of stake that solve the same problem using vastly less energy.

Re: Bitcoin and positive vs. normative economics

#188

Post by dnautics »

chipsy wrote: post #89
jamroom wrote: post #48

Earlier quoted context omitted.

But does Bitcoin really have a floor related to the energy put into the mining? Since the energy cost is paid for by the miners, do other players in Bitcoin "respect" that floor? I don't see that - there's nothing keeping a Bitcoin from going all the way to zero - regardless of the energy consumed in it's production, and Krugman argues that gold (and the feds) have a bottom that is greater than zero. My understanding…

I think Bitcoin does have a soft floor because that cost would form the natural price target for a miner trying to trade, but the cost is avoidable by switching to proof of stake as done in PeerCoin and Nxt. The crypto problems solved in Bitcoin don't have the intrinsic utility of a precious metal; you could make a better argument for something like PrimeCoin, which attacks a major computation problem, having this ki…

"The crypto problems solved in Bitcoin don't have the intrinsic utility of a precious metal."

So gold was used extensively 2000-3000 years ago. Exactly what was its intrinsic utility then? Plating astronaut helmets and high-conductivity, corrosion-resistant electronics?

The intrinsic utility of gold was that it was eminently verifable. It's got a characteristic ductility and it was a yellow metal. You could easily verify if it was 100%, 80% etc. In other words, to the ancients, the intrinsic utility of gold was "its trust model". Sound familiar?

Re: Bitcoin and positive vs. normative economics

#190

Post by MarkPNeyer »

pron wrote: post #177
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…

> If blockchain currencies are the future, central banking is over, and our society will have to figure out how to make the economy work with endemic deflation. There's a somewhat cyclical argument here, as a semi-deflationary (or at least unregulated) currency was already standard for many years, and central banking and regulated currencies grew because that system was unacceptable. So you could say that central ban…

>[the system of semi-deflationary currency] was unacceptable.

Unacceptable to whom?

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