Bitcoin and positive vs. normative economics • Hacker News Board

Re: Bitcoin and positive vs. normative economics

#201

Post by aes » Sat, Dec 28, 2013, 10:14 PM UTC

dnautics wrote: post #188

chipsy wrote: post #89

Earlier quoted context omitted.

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 ve…

Jewelry.

Re: Bitcoin and positive vs. normative economics

#202

Post by nhaehnle » Sat, Dec 28, 2013, 10:15 PM UTC

JumpCrisscross wrote: post #94

I love rule-based central banking. It injects predictability and stability into a monetary system and has had fantastic results in the developing world. Cryptocurrencies allow for rule-based monetary systems without the risk of a central bank failing to adhere to its rules prescription. A world of competing crypto currencies would be fascinating - various rule systems being adopted and phased out as (a) critical flaw…

I would argue that the rules of Bitcoin are not very useful for economic development.

Perhaps the most important lesson in the history of money is that the amount of money needs to flexibly adjust to economic circumstances.

The existing fiat system achieves this, because banks create and destroy money in a decentralized, market-controlled fashion by giving out loans and having them paid back. When a firm invests using bank loans, then the money supply and economic activity increase in lock-step. The result is an economy that was so stable in historical comparison that many economists declared the "macro problem" to be solved (the so-called "Great Moderation"; obviously, 2007 showed that they were hilariously wrong).

Metal standards do not achieve this, and they fail in two ways: The economy can grow faster than the supply of metal; that's the more usual failure mode. But the supply of metal can also grow faster than the economy, which is just as bad (i.e., Spain and the in-flux of metal from America).

Bitcoin can only fail in one of these modes, but since that's the more usual failure mode anyway, it's just as bad as a metal standard.

So that belongs to the normative discussion that Krugman talks about: An economy based on Bitcoin as money is going to suffer through the same problems (gratuitous recessions and mass unemployment) that economies based on metal standards used to suffer from [0]. We already know that, so let's just not go there.

[0] Similarly, economies based on the Euro suffer the same problem via the exact same mechanisms, as do economies where politicians implement unnecessary austerity.

Re: Bitcoin and positive vs. normative economics

#203

Post by prostoalex » Sat, Dec 28, 2013, 10:16 PM UTC

greyman wrote: post #171

prostoalex wrote: post #150

Earlier quoted context omitted.

> Inherent value of USD is that government declared it has value (by fiat). Wait, what? Definition of fiat currency is the one that has no intrinsic value. USD's intrinsic value is the paper and the metal used to manufacture it.

Ok, but I think the point is clear. USD has value because U.S. government said so and people trust that government, and Bitcoin has value because some people trust the Bitcoin network as the "currency issuer". If we imagine a scenario, where a majority of businesses will accept bitcoins, and people will be able to buy bitcoins and use either dollars or btc for payments, and both methods will be legal, we will see tha…

Right, the trust in the future spending power makes a currency not only a medium of exchange, but a medium of store.

It seems that as far as alternative currencies are concerned, altcoins have a better chance of being spread. What's to prevent Amazon from coming up with AmazonCoin, pre-mining an entire AmazonCoin set for themselves, and then offer this altcoin with a liquidity guarantee on largest retail site. Nothing to prevent them from accepting BTC, but I think any US retailer would be prone to quickly trade in BTC for USD after the transaction is completed, as there's volatility risk, and payments to merchants and the tax man are due in USD anyways.

Re: Bitcoin and positive vs. normative economics

#204

Post by davidy123 » Sat, Dec 28, 2013, 10:16 PM UTC

olefoo wrote: post #106

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…

So you need to write that up in a format that Krugman can understand and get it in front of his eyes. But I think his main criticism is that all of that infrastructure falls under the medium of exchange function and doesn't serve as a store of value. What I think you're saying is that the block chain and it's supporting infrastructure and the functions it enables ( decentralized notary, unrepudiable statements, etc.…

Couldn't someone under any sane system simply copy someone's block chain work in a new system? There has to be more to a 2014 system than a technical ability.

Re: Bitcoin and positive vs. normative economics

#205

Post by gbhn » Sat, Dec 28, 2013, 10:18 PM UTC

vincvinc wrote: post #172

ashray wrote: post #55

Earlier quoted context omitted.

I think the core problem with bitcoin acceptance is that understanding the way it functions spans many domains of expertise. There are cryptography, cryptocurrency, decentralized networks, economic concepts (inflation/deflation), centralized banking, government controlled currencies, computing ability, mathematics, human psychology, and ... so much more! It's really something that has a little bit of everything in th…

> suggest it is doomed for failure Wait, I think we are missing his point. Last sentence of the article: "So let’s talk both about whether BitCoin is a bubble and whether it’s a good thing — in part to make sure that we don’t confuse these questions with each other." I think this article does not go into the 'will it work?' debate. It alerts us instead to another debate, 'to what degree do we want it?' It is an addit…

I think this is a good point, but for Paul Krugman, the discussion of the role of the central bank in the stability of the dollar is absolutely, well, central, to the question of desirability. That is, the central bank is in some sense "responsive" to the monetary environment in a way that bitcoin is explicitly and inexorably not. I think Paul Krugman is arguing that that is a big deal.

Re: Bitcoin and positive vs. normative economics

#206

Post by tlrobinson » Sat, Dec 28, 2013, 10:18 PM UTC

I was not disappointed to find this as the top comment (at the time I viewed the article):

1998 - Another "evil" prediction from Mr. Krugman:

---

The growth of the Internet will slow drastically, as the flaw in "Metcalfe's law"--which states that the number of potential connections in a network is proportional to the square of the number of participants--becomes apparent: most people have nothing to say to each other! 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.

---

But hey, the future of the dollar might be the same as that of the fax machine ???

Re: Bitcoin and positive vs. normative economics

#207

Post by haakon » Sat, Dec 28, 2013, 10:18 PM UTC

prostoalex wrote: post #150

greyman wrote: post #116

Earlier quoted context omitted.

> He's entirely correct in saying Bitcoin has zero inherent value, as opposed to gold and USD. No, no, he is NOT correct on that. Bitcoin's inherent value is in the Bitcoin technology. Inherent value of USD is that government declared it has value (by fiat). You can actually create "pretty things" with bitcoin technology, the same way you can create pretty things with gold - those are just other things.

> Inherent value of USD is that government declared it has value (by fiat). Wait, what? Definition of fiat currency is the one that has no intrinsic value. USD's intrinsic value is the paper and the metal used to manufacture it.

Every HN post on Bitcoin has to have a discussion about the definition of fiat money.

Fiat literally means "it shall be"; in terms of fiat money this refers to government's declaration that something is legal tender. The US declares that the dollar is to be used as money - that makes the USD fiat money.

Enough people use the term to refer to money which has no "intrinsic value" that the term now means both things. Personally I think that's nonsensical – if the US declared that gold coins are to replace the USD as legal tender, then those gold coins would be fiat money, regardless of any intrinsic value gold might have. But you can't argue against language evolution; "fiat money" has two different and unrelated definitions now, and we need to repeatedly have arguments ending in both sides being correct and nothing of value being concluded.

This discussion must now, as is tradition, be followed up by a discussion of what intrinsic value means and whether it exists. So go on, discuss.

Re: Bitcoin and positive vs. normative economics

#208

Post by Thiz » Sat, Dec 28, 2013, 10:19 PM UTC

"Stross doesn’t like that agenda, and neither do I"

Statists gonna hate bitcoin, no matter what.

Re: Bitcoin and positive vs. normative economics

#209

Post by RoboTeddy » Sat, Dec 28, 2013, 10:19 PM UTC

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…

In theory, possibly:

- identity ledgers

- credit scores / reputation tracking

- credit & debt creation and trading

- non-bitcoin asset ownership ledgers

- voting systems

- kickstarter

- ebay

It'd actually be possible to build distributed voting systems into this applications, such that changes require majority approval. It's also possible for new decentralized corporations to raise money by "IPO"-ing with a currency (Mastercoin raised ~5 million this way).

Re: Bitcoin and positive vs. normative economics

#210

Post by nhaehnle » Sat, Dec 28, 2013, 10:21 PM UTC

etjossem wrote: post #121

username223 wrote: post #109

Earlier quoted context omitted.

Krugman is smart and a bit condescending, with a sarcastic bent. "Is evil" was not prima facie humorous, but the way certain people in this thread have responded to the title without reading the article may have been part of the joke.

It's still a totally inaccurate bait and switch title, which annoys me and makes me like his column a little less. If I click through to an article called "Bitcoin is Evil", maybe I actually want to read about how a Bitcoin-dominated world is going to making exploiting the poor trivially easy. I'm not convinced yet, but it's a plausible (if normative) argument someone could make, so there's no sense in making a joke…

Judging from a follow-up discussion, I believe you're using the word "redistribution" in a way that is meaningless and/or needlessly gives ground to a libertarian framing of the situation.

In a nutshell, if you say "redistribution", you must have some baseline in mind. Many people are fooled into accepting an "everyday libertarian" distribution of resources as a baseline, but this is both philosophically problematic and politically foolish if you are not a libertarian yourself.

Taxes are part of the distributive system of society, as are other parts of the legal code such as patents and copyright law. There is no reason to label one part of the law "redistributive" while you call other parts merely "distributive".

Matt Bruenig makes the argument better than I could, e.g. http://mattbruenig.com/2012/09/20/there-is-no-such-thing-as-... or http://mattbruenig.com/2013/11/14/one-last-note-on-redistrib...