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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

#421

Post by dragonwriter »

jadeddrag wrote: post #417
fat0wl wrote: post #396

Earlier quoted context omitted.

lol this this thisssss! bitcoin culture in a nutshell. the major economists & finance analysts say stuff like "explain how this is not a speculative bubble", for example, because they outright see it as one & the bitcoiners dismiss them as hacks because they didn't use a bunch of crypto buzzwords

Which is more likely, that economists don't understand cryptography, or cryptologists don't understand economics?

More likely than either being particularly more likely than the other is that neither economists nor cryptographers are particularly likely to understand the other field.

Re: Bitcoin and positive vs. normative economics

#422

Post by ars_technician »

baddox wrote: post #351
NickSharp wrote: post #249

Earlier quoted context omitted.

Our current voting system has an emphasis on the secret ballot. There are records of which polling place a person voted at, and whether they showed up to vote, but (in theory) there's no way to tell which of the thousands of ballots from that polling place match to which individual voter.

You can still use coercion to discourage certain groups from voting, which has happened plenty of times throughout history.

So? That's not solved by a bitcoin voting system either.

Re: Bitcoin and positive vs. normative economics

#423

Post by ubernostrum »

rokhayakebe wrote: post #272
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…

It is amazing how one word "COIN" added to this word has shaped everyone's thinking. Would we treat it the same if the guys behind it named it "Bitcard" or "Bitpoint?" That one word is what set apparently most people to speak of it, and treat it as money. BC is nothing like Money. BC is a card trading game where the players make the cards, the difficulty to make cards increases , and the value of the cards is decided…

Given how often Bitcoin is advertised, by its genuine proponents, specifically as a currency, this feels like an attempt to move the goalposts when someone points out that it doesn't do so hot at being a currency.

Re: Bitcoin and positive vs. normative economics

#424

Post by n3m6 »

Aqueous wrote: post #21

I'm a liberal, a Keynesian, but my interest in BitCoin is completely non-ideological. And I resent being painted with an ideological brush by Krugman because I can see the elegance in BitCoin, and I can see the possibility that one day, in spite of my ideological beliefs that unregulated markets are susceptible to bubbles and destructive volatility, BitCoin or something like it might still be able to function as a st…

You're wrong on ideology. Ideology may function through you despite what label you may attach yourself, or what beliefs you may hold of your beliefs.

(had to sign in just for this comment. damn)

Re: Bitcoin and positive vs. normative economics

#425

Post by ubernostrum »

dnautics wrote: post #362
ubernostrum wrote: post #325

Earlier quoted context omitted.

The bimetallic argument was basically a fight between those who already were wealthy and wished to preserve their position, and those who were not yet wealthy but wanted to improve their position. Backers of a gold-only standard (mostly in the eastern US) wanted it because their fortunes were already amassed, and denominated in gold or gold-backed currency, and they did not want this diluted by the influx of silver f…

The question that is whether the assertion that diluting the value of gold by introducing to serve as a second currency actually did improve the lot of the less wealthy. Historical evidence suggests that a fiat devaluation hurts the poor (well ultimately it hurts the rich when the poor overturn the wealthy in revolution). Moreover, the architects of this policy failed to see in-retrospect-obvious problems like arbitr…

Backers of bimetallism knew it would "dilute" the value of existing currency (i.e., would cause inflation, with subsequent known negative effects). They did not "miss" that, or overlook it; they accepted it as part of a tradeoff. They knew there would be some pain at the outset, but believed that the eventual outcome -- of increasing the number of people who could turn metal into legal tender at a favorable rate, and breaking up some of the power of established wealthy interests -- would outweigh that pain through resulting economic mobility and wider-spread prosperity.

Hence the argument for "trickle up", effectively, as opposed to "trickle down".

Re: Bitcoin and positive vs. normative economics

#426

Post by ahquresh »

rokhayakebe wrote: post #272
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…

It is amazing how one word "COIN" added to this word has shaped everyone's thinking. Would we treat it the same if the guys behind it named it "Bitcard" or "Bitpoint?" That one word is what set apparently most people to speak of it, and treat it as money. BC is nothing like Money. BC is a card trading game where the players make the cards, the difficulty to make cards increases , and the value of the cards is decided…

The fact that your comment is correct and wrong at the same time is what really raises red flags for me with regards to bitcoin.

Let's look at what you find if you were somebody searching up bitcoin for the first time. You would eventually land on http://bitcoin.org/en/. bitcoing.org describes bitcoin as open source P2P Money. It says "Bitcoin is an innovative payment network and a new kind of money". You go on Wikipedia and you get "Bitcoin is a peer-to-peer payment network and digital currency based on an open source[6] protocol, which makes use of a public transaction log".

The creators and early adopters of Bitcoin clearly wanted it to be used as a currency and as money, but it is being done in an unconventional way, to say the least. Unfortunately, none of us seem to understand this so everyone thinks that if it is supposed to be money at its root, it should behave like money does.

Bitcoin is such new and uncharted territory that most of us do not know what to expect. We are all wondering how these virtual coins are able to stand and hold value on the mere fact that people are exchanging them among one another for nothing other than speculating that they will benefit from the exchange in a future exchange (their really is no benefit you feel right away, such as their would be if you bought something with cash, as many places do not accept bitcoin). But at the same time, I feel that when money in the form of paper bills was first introduced, there had bound to be people wondering the same thing. After all, taking a step back, who would consider putting such value to pieces of paper that we do in today's day and age?

At the end of the day, I see what Bitcoin is trying to be and would be real happy to see it get there, but I also see what people think it is, a glorified internet point, their ticket to wealth.

Re: Bitcoin and positive vs. normative economics

#427

Post by davidw »

jellicle wrote: post #236
ReidZB wrote: post #214

Earlier quoted context omitted.

Such a scheme has a huge flaw: it allows extortion/coercion. Suppose I am a mob boss and I wish to become (insert position here). I send my goons to inform you that voting for me is a wise decision because I can offer you protection from the vicious thugs in the area. It would be a shame if the vicious thugs burned your house down, wouldn't it? So, you'd be forced to reveal your bitvote address to me under threat of…

It's not a huge flaw, since our current voting system (in any country you care to name) allows exactly that, and your scenario is not observed in the wild, since it is illegal.

Actually, people can and do sell votes this way in places in Italy. How they do so is extensively documented. It's one of the reasons that cameras are supposed to be strictly forbidden in voting booths - so they can't take a picture verifying how they voted.

Re: Bitcoin and positive vs. normative economics

#428

Post by yummyfajitas »

tptacek wrote: post #230
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.

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".

Look, the real problem with deflation is that it increases real interest rates and makes structural rigidities caused by sticky wages/prices more potent. If you want to argue against bitcoin on Keynesian grounds, start there.

The only way deflation will reduce consumption is if the rate of deflation exceeds all other rates of return. Simple math: I consume if

(value of consumption now) > exp(-(discount rate - rate of return) x time) x (value of consumption in future)

The `rate of return` term is the rate of return on my best investment - this is affected by deflation primarily if the deflationary currency becomes or improves my best investment.

If you plug in some example the numbers, you'll see that the effect this has on consumption is miniscule compared to the effect this has on the allocation of investment. That's because when choosing between investments both sides of the equation have the discount rate, and it cancels.

Atmosx is appealing to newspaper column keynesianism (that vague "I dunno what AD is, but I want more of it" flavor), and doesn't really understand what he is talking about. Do a back of the envelope calculation and you'll see I'm right.

Re: Bitcoin and positive vs. normative economics

#429

Post by swalsh »

tlrobinson wrote: post #206

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…

Maybe as an economist, his predictions about economics will be more accurate than his predictions about technology?

Re: Bitcoin and positive vs. normative economics

#430

Post by yohanatan »

icambron wrote: post #412
yohanatan wrote: post #388

Earlier quoted context omitted.

> If BTC starts collapsing, perhaps all that infrastructure will go on to do great things for society, but how does that help Bitcoin? If the infrastructure goes on to do great things for society then it has (and has always had) intrinsic value and thus the price of BTC rebounds (or more likely never collapses in the first place).

No, it doesn't. BTC isn't a good value store (or have intrinsic value) just because the infrastructure that processes it is--in a different sense of the word--valuable. If a bitcoin conferred a fraction of ownership of that infrastructure to the coin's holder, you'd have a point, but it doesn't; the holder just has the coin. The parts of the infrastructure you might actually sell are owned by someone else, and the op…

I was considering the blockchain itself as part of the infrastructure. If the [rest of the] infrastructure (i.e., the mining equipment) becomes (or is) useful, it is only inasmuch as it is a good shepherd of the blockchain.

It is both the mining equipment (at any point in time) and the blockchain which make possible the use of BTC as both a storage of value and a medium of exchange. As long as there exists both a globally-distributed secure ledger and a network capable of maintaining it, then the individual accounts within its purview obviously have whatever values it records them as having.

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