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Krugman on BitCoin

krugman.blogs.nytimes.com

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Re: Krugman on BitCoin

#161

Post by sesqu »

maratd wrote: post #84
snorkel wrote: post #33

"What we want from a monetary system isn’t to make people holding money rich; we want it to facilitate transactions and make the economy as a whole rich. And that’s not at all what is happening in Bitcoin." Spot friggin' on, Mr. Krugman. Bitcoin's supply limiting design has added a psychological dimension that encourages collecting. Perhaps when Bitcoin reaches supply maturity the value will stabilize but for now its…

> Perhaps when Bitcoin reaches supply maturity the value will stabilize I absolutely hate Krugman, but this is Econ 101 and even he gets it right. Bitcoin was a flawed experiment from the start because it has an absolute supply limit. Reaching that limit won't help. It'll make things worse. The money supply needs to expand for healthy economic activity and growth. If it doesn't, weird shit starts to happen. Here's an…

> In a normal economy, the population is constantly expanding.

That may be, but the western world is then abnormal. US population is projected to peak at 2030, and a number of countries already have negative population growth. Exponential growth assumptions should not be made for long periods ahead.

http://en.wikipedia.org/wiki/List_of_countries_by_population...

Re: Krugman on BitCoin

#162

Post by rmc »

padmanabhan01 wrote: post #149
maratd wrote: post #84

Earlier quoted context omitted.

> Perhaps when Bitcoin reaches supply maturity the value will stabilize I absolutely hate Krugman, but this is Econ 101 and even he gets it right. Bitcoin was a flawed experiment from the start because it has an absolute supply limit. Reaching that limit won't help. It'll make things worse. The money supply needs to expand for healthy economic activity and growth. If it doesn't, weird shit starts to happen. Here's an…

But isn't one rule of money that it should at least hold it's value? Isn't that the main reason gold was used before? What is the point of using something as money if it keeps decreasing in value?

Just because something was widely held to be true in the past doesn't mean it's widely held to be true now. Some examples: "Gold is a good thing to base our money on", "Black people are mentally inferior to white people", "Homosexuality is unhealthy", "The economy requires slavery".

Re: Krugman on BitCoin

#163

Post by foobarbazoo »

trevelyan wrote: post #36
dasil003 wrote: post #6

Earlier quoted context omitted.

Uh, where are the BTC prices on that site? If you want to come across as anything other than a froth-mouthed crackpot hurling ad-hominems at a respected economist, you need to offer up some actual data. Granted, Krugman didn't either, but he's got a reputation to fall back on, you've got nothing.

The title is a reference to the book "Golden Fetters" by Barry Eichengreen which discusses the role the gold standard played in transmitting deflation during the Great Depression. Krugman isn't citing statistics because Eichengreen does the heavy lifting here. He's just reminding people that libertarians who attack the Fed because they want a new gold standard are basically crazy. I agree with his assessment (bitcoin…

Wait, the Fed is formed to finance WW1, goes on a massive inflationary binge through the 20s and causes the Great Depression, and the takeaway is that the gold is the problem?

Genius.

Re: Krugman on BitCoin

#164

Post by tptacek »

smokeyj wrote: post #148
snorkel wrote: post #33

"What we want from a monetary system isn’t to make people holding money rich; we want it to facilitate transactions and make the economy as a whole rich. And that’s not at all what is happening in Bitcoin." Spot friggin' on, Mr. Krugman. Bitcoin's supply limiting design has added a psychological dimension that encourages collecting. Perhaps when Bitcoin reaches supply maturity the value will stabilize but for now its…

If a bitcoin clone were to spin-off where inflation was controlled by a set algorithm, would we still consider it to have a limited supply?

Inflation and deflation aren't "controlled" by Bitcoin's design. The money supply is. Because the money supply is capped, over the long term, deflation is predictable.

The week-to-week reality of Bitcoin is one of wild swings in the "valuation" of the Bitcoin "asset". Describing these swings as "inflationary" and "deflationary" dignifies Bitcoin. Was the collapse of PETS.COM and resulting devaluation of its stock "inflationary"? Was its run-up "deflationary"?

Re: Krugman on BitCoin

#165

Post by wmf »

zach wrote: post #106
sliverstorm wrote: post #82

Earlier quoted context omitted.

Not to mention, as bitcoins are inevitably lost here and there (a deleted wallet.dat here, a hoarder there, a transaction wired to a mistyped address that doesn't exist) the supply of bitcoins will actually shrink.

Wow, that's an excellent point. That doesn't happen easily with gold. People retrieve gold from ships sunk hundreds of years ago. Actually, is there an efficient way that physical gold or other precious metals can be intentionally destroyed or put beyond use? Has anyone tried to use this technique to corner a market? What would happen if Hugo Chávez actually got his hands on 211 tons of actual gold and announced he h…

Actually, is there an efficient way that physical gold or other precious metals can be intentionally destroyed or put beyond use? Has anyone tried to use this technique to corner a market?

In Goldfinger, the eponymous villain tried to irradiate all the gold in Ft. Knox with a dirty bomb, making it worthless.

Re: Krugman on BitCoin

#166

Post by JoachimSchipper »

tptacek wrote: post #158
2arrs2ells wrote: post #157

Earlier quoted context omitted.

If money is decreasing in value, it gives people a huge incentive to do something with it - buy something or invest. As long as the decrease to the value is small (1-3%) and predictable, this is a good thing .

Since deflation is an obvious tax on investment and purchasing, arguments that increases in the value of a currency are "obviously" a good thing serve as a sort of litmus test for why people are interested in things like Bitcoin. The subtextual motivation for Bitcoin advocacy has always been "it's a speculative asset and I hold a position in it". Everything else is just rhetorical cover. The unfortunate reality is th…

I wouldn't be so sure that the (original) Bitcoin people are running a pump-and-dump scam - there is very little evidence either way. And there are plenty of people who genuinely seem to believe that Twitter causes and/or wins revolutions: love of technology, libertarianism and something we'll call optimism do occur together, and cypherpunks are not the least vulnerable.

Re: Krugman on BitCoin

#167

Post by tptacek »

mcantelon wrote: post #130
rabidsnail wrote: post #98

Earlier quoted context omitted.

Inflation encourages the savers to put their money to work (by investing in the stock market, for example) so that the amount of money that they have increases in proportion to the growth of the overall economy. This is a benefit.

It doesn't ecourage you, it forces you. Yet currency is misleadingly sold to society as a legitimate store of value.

Please cite one credible source of mainstream financial planning advice that suggests parking savings in US Dollars.

Re: Krugman on BitCoin

#168

Post by tptacek »

JoachimSchipper wrote: post #166
tptacek wrote: post #158

Earlier quoted context omitted.

Since deflation is an obvious tax on investment and purchasing, arguments that increases in the value of a currency are "obviously" a good thing serve as a sort of litmus test for why people are interested in things like Bitcoin. The subtextual motivation for Bitcoin advocacy has always been "it's a speculative asset and I hold a position in it". Everything else is just rhetorical cover. The unfortunate reality is th…

I wouldn't be so sure that the (original) Bitcoin people are running a pump-and-dump scam - there is very little evidence either way. And there are plenty of people who genuinely seem to believe that Twitter causes and/or wins revolutions: love of technology, libertarianism and something we'll call optimism do occur together, and cypherpunks are not the least vulnerable.

To be clear: I'm not saying the original design was a scam. Only its realization as a real system people can interact with and spend money on.

This whole system is morally no different than Zynga tomorrow setting up a system to trade options on Farmville tomatoes.

Re: Krugman on BitCoin

#169

Post by wmf »

smokeyj wrote: post #148
snorkel wrote: post #33

"What we want from a monetary system isn’t to make people holding money rich; we want it to facilitate transactions and make the economy as a whole rich. And that’s not at all what is happening in Bitcoin." Spot friggin' on, Mr. Krugman. Bitcoin's supply limiting design has added a psychological dimension that encourages collecting. Perhaps when Bitcoin reaches supply maturity the value will stabilize but for now its…

If a bitcoin clone were to spin-off where inflation was controlled by a set algorithm, would we still consider it to have a limited supply?

That would solve one problem, although it seems impossible to pick the right level of inflation. Then we could get on to discussing Bitcoin's other problems, such as slow transaction clearing and poor usability.

Re: Krugman on BitCoin

#170

Post by arvinds »

jtolle wrote: post #160
arvinds wrote: post #95

He should have added a link to this alltime classic - a good macroeconomics, deflation 101 tutorial: http://www.slate.com/id/1937/

I was going to mention that article too. It's a great explanation. Money and monetary systems are human creations, not laws of nature.

Yeah - it always amuses me to read these long detailed arguments on these threads from people who seem to not have understood basic macroeconomics.
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