Bitcoin and positive vs. normative economics • Hacker News Board

Re: Bitcoin and positive vs. normative economics

#221

Post by loceng » Sat, Dec 28, 2013, 10:36 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…

The problem that I have heard being stated before is that Bitcoin is associated with real money. This basically leads to the value of each Bitcoin increasing, and then early adopters making gains that they shouldn't really be making. I don't know how a system would look, where everyone starts off with X Bitcoin, though the current system feels wrong where some people now have $100s millions of Bitcoins and didn't do anything for them. This value should be re-distributed somehow.

Re: Bitcoin and positive vs. normative economics

#222

Post by gnaritas » Sat, Dec 28, 2013, 10:37 PM UTC

saosebastiao wrote: post #191

yummyfajitas wrote: post #96

Earlier quoted context omitted.

Can you explain how exactly or why would anyone buy any items (that's what currencies are for after all) using a deflationary currency? Why would anyone ever cash out of any position with a positive rate of return? By this logic everyone should stop consuming and put all their money into SPY, or similar market tracking indices. Yet they don't.

Exactly. The traditional keynesian definition of rationality (wrt inflation/deflation) is so far removed from reality that it should be a joke by now. Nobody actually behaves the way their mental model says they should.

Except that's not what Keynseian's say, and people do behave the way Keynseian's say, deflation does curb spending and inflation does encourage it; Keynseian's don't claim people will stop spending, they claim they'll spend less.

Re: Bitcoin and positive vs. normative economics

#223

Post by josephlord » Sat, Dec 28, 2013, 10:37 PM UTC

I'm not sure Krugman's understanding of normal money is that great (or at least it is just developing): http://www.debtdeflation.com/blogs/2013/12/17/oh-my-paul-kru...

That said I also don't see that there is any reason that the value couldn't drop to zero or near zero. Maybe the next crypto currency could be called BitTulip.

Re: Bitcoin and positive vs. normative economics

#224

Post by eropple » Sat, Dec 28, 2013, 10:39 PM UTC

gnaritas wrote: post #192

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 So would another planet colliding into the earth, fortunately we're in danger of neither. > 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. No. Deflation is a part of bitcoin, not of crypto currencies in general. When deflation shows itself to be the problem it l…

And Bitcoin speculators are pricing in the frictional impact of changing to another arbitrary, fragmentary currency "when we need it"...where, exactly?

Re: Bitcoin and positive vs. normative economics

#225

Post by haberman » Sat, Dec 28, 2013, 10:40 PM UTC

yummyfajitas wrote: post #96

atmosx wrote: post #45

Earlier quoted context omitted.

You seem pretty accustomed to economics. Can you explain how exactly or why would anyone buy any items (that's what currencies are for after all) using a deflationary currency? Then again, it's not a design a flaw - as I once thought - it's a clear choice: Why would anyone would want to own a non-deflationary asset? :-) So actually, in my view, BTC as a currency is already failed. No one will be eager to buy online (…

Can you explain how exactly or why would anyone buy any items (that's what currencies are for after all) using a deflationary currency? Why would anyone ever cash out of any position with a positive rate of return? By this logic everyone should stop consuming and put all their money into SPY, or similar market tracking indices. Yet they don't.

I think the better question is: why would anyone invest if simply holding currency is an investment?

If you are an entrepreneur or a company going IPO, the you'd have to offer a better expected return than the currency itself. Your competition for investment dollars would be not only other companies, but cash.

Re: Bitcoin and positive vs. normative economics

#226

Post by [deleted] » Sat, Dec 28, 2013, 10:41 PM UTC

MarkMc wrote: post #220

> Underpinning the value of gold is that if all else fails you can use it to make pretty things. But this 'floor' only accounts for, say, 3% of the price of gold. Whatever makes the remaining 97% a reliable store of value could also provide Bitcoin with 100% of its store of value. A similar point comes from Tim Harford's fascinating description of the currency used on the Pacific island of Yap: ----------------------…

[deleted]

Re: Bitcoin and positive vs. normative economics

#227

Post by dnautics » Sat, Dec 28, 2013, 10:42 PM UTC

coldtea wrote: post #119

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…

> 1) Bitcoin mining has a pretty horrible carbon footprint. ("but so does ..." doesn't eradicate this argument) From a logical standpoint, "so does X" (e.g gold mining) very much does eradicate this as an argument against BitCoin, unless there is some Y which has less carbon footprint than either. If there is not, then the carbon footprint it's an necessary evil, and a constant through all similar systems.

printing dollars is done by keynesians to artificially inflate consumption. Which means, burning more oil, making more plastics, mining more (physical) metals, using more agriculture, etc, etc, etc,. I shudder to think of sustainability impact of currency manipulation.

Re: Bitcoin and positive vs. normative economics

#228

Post by 001sky » Sat, Dec 28, 2013, 10:43 PM UTC

loceng wrote: post #221

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…

The problem that I have heard being stated before is that Bitcoin is associated with real money. This basically leads to the value of each Bitcoin increasing, and then early adopters making gains that they shouldn't really be making. I don't know how a system would look, where everyone starts off with X Bitcoin, though the current system feels wrong where some people now have $100s millions of Bitcoins and didn't do…

hmm...sounds like real estate in NY, London, or California !

Re: Bitcoin and positive vs. normative economics

#229

Post by tolmasky » Sat, Dec 28, 2013, 10:43 PM UTC

loceng wrote: post #221

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…

The problem that I have heard being stated before is that Bitcoin is associated with real money. This basically leads to the value of each Bitcoin increasing, and then early adopters making gains that they shouldn't really be making. I don't know how a system would look, where everyone starts off with X Bitcoin, though the current system feels wrong where some people now have $100s millions of Bitcoins and didn't do…

... Why? It seems to me that it works the same as any system with early adopters willing to take on risk. People that got into twitter early make more than people who get in later, without any necessary correlation to how much work they've contributed. Early investors in a company often put in no work beyond their capital, should their shares be redistributed after it becomes a sure thing?

If bitcoin fails, the losses of those that went into bitcoin certainly won't be "redistributed", so why should the gains? Not to mention the current monetary system also has huge disparity so it doesn't really seem to be a property exclusive to bitcoin per se.

A system that offers no rewards to early adopters makes no sense because everyone is incentivized to just wait until it proves itself since the gains will be redistributed anyways, so why bother with the risk before it's a sure thing?

Re: Bitcoin and positive vs. normative economics

#230

Post by tptacek » Sat, Dec 28, 2013, 10:44 PM UTC

yummyfajitas wrote: post #96

atmosx wrote: post #45

Earlier quoted context omitted.

You seem pretty accustomed to economics. Can you explain how exactly or why would anyone buy any items (that's what currencies are for after all) using a deflationary currency? Then again, it's not a design a flaw - as I once thought - it's a clear choice: Why would anyone would want to own a non-deflationary asset? :-) So actually, in my view, BTC as a currency is already failed. No one will be eager to buy online (…

Can you explain how exactly or why would anyone buy any items (that's what currencies are for after all) using a deflationary currency? Why would anyone ever cash out of any position with a positive rate of return? By this logic everyone should stop consuming and put all their money into SPY, or similar market tracking indices. Yet they don't.

Because (1) people do not agree that SPY ETFs are a reliable way to earn a return, (2) the process of moving money in and out of ETFs is far from frictionless, and (3) once people move money into an investment vehicle, they are in fact hesitant to liquidate it simply to make purchases, in a way they are not with "currency".