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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

#171

Post by greyman »

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.

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 that dollar doesn't have any more "intrinsic value" (whatever that means) as bitcoin. It will be just two competing payment systems with different attributes.

Re: Bitcoin and positive vs. normative economics

#172

Post by vincvinc »

ashray wrote: post #55
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…

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 addition to what Charlie Stross was saying. He is just adding "guys, why are your comments replying to a different question?"

At least, I think that is the discussion he wants to start. But his talk about the ceiling and floor in value in the middle of the article actually belongs to the OTHER discussion, the one he does not want to start but spends half of the text going into.

It is like trying to talk about empirics to consider for deciding national policy, while everyone is shouting their usual political opinions.

Re: Bitcoin and positive vs. normative economics

#173

Post by shimon »

US Government taxes certainly do support the US Dollar's value, but that support was more vital at the creation of the currency than it is today. Today's value is secured by the many merchants who trade in the dollar at fairly predictable prices.

Iran comes to mind as a merchant who could make a similar commitment to a cryptocurrency. What if you could suddenly buy oil at BTC X per barrel? This could establish enough of a link between BTC and a high-volume commodity that it could create some stable value, and might appeal ideologically to a class of economic actors that are already somewhat motivated to avoid trade in dollars and euros.

Re: Bitcoin and positive vs. normative economics

#174

Post by etjossem »

username223 wrote: post #157
etjossem wrote: post #121

Earlier quoted context omitted.

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…

"...making exploiting the poor trivially easy.... you already support redistributionist taxation and the welfare state." Judging by the clichés you use, exploiting the poor is probably a good thing in your Libertarian utopia.

I'm not a libertarian. I am using the correct terms that apply to those policies. I don't think of the phrase "welfare state" as pejorative, nor was it originally intended to be so. A combination of redistributionist tax code and generous healthcare/education/benefits are working out really well for Scandinavia right now, and in my opinion we could learn quite a bit from what we're seeing in those countries.

In my experience, strong libertarians prefer to avoid even mentioning that the poor exist.

Re: Bitcoin and positive vs. normative economics

#175

Post by Malician »

atmosx wrote: post #32

Krugman is right, I agree with him 100% on this, but almost every time I tried to make any sensible argument about bitcoin with people actually holding bitcoin, I hit a wall. Most people confuse currencies with assets, storage-medium with exchange, etc. While at the same they are just hoarding. I think that BTC will stick around because it has some unique qualities that are requested by the market such as partial ano…

I dealt with virtual game currency before I really started messing around with banks.

There was a ton of, "What do you mean I can't do this", and "What do you mean this takes longer than five seconds.. four DAYS?!", and "they're closed? So I can't? What? You're joking with me, right?"

I understand that dealing with money is incredibly hard due to regulation, but I would like something to use as a medium of exchange which doesn't leave me constantly infuriated.

Re: Bitcoin and positive vs. normative economics

#176

Post by natrius »

olefoo wrote: post #166
natrius wrote: post #97

Earlier quoted context omitted.

Agreed, but I think both the computational attacks and miner collusion are on a similar level of difficulty as printing passable counterfeit dollars.

So someday we might see the secret service enforcing rules about how much computing capacity any one entity can control; to prevent collusion attacks on widely used cryptographic ledger systems?

I think the most likely outcome is that governments will become the largest miners to secure blockchains. The security of a blockchain is a public good.

There's no need to regulate computing capacity when you have the power to tax enough wealth to ensure that the government always has more computing capacity. It's an arms race without the nuclear winter, and with the side effects of increased pollution and rapidly advancing processing power.

Re: Bitcoin and positive vs. normative economics

#177

Post by pron »

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 banking was a response to problems with Bitcoin-like currencies, and Bitcoin is therefore reactionary. There is little evidence yet that Bitcoin is anything but a reactionary currency, and no evidence that crypto-currencies are in any way "the future" (I believe they will be used in the future, perhaps more than they are used now, just as gold and diamonds are still used in some circles; but I don't see any indication that they are the future).

Re: Bitcoin and positive vs. normative economics

#179

Post by jshen »

theboywho wrote: post #41
ubernostrum wrote: post #8

Earlier quoted context omitted.

How about taking seriously someone who is, you know, well-known (to the point of receiving a Nobel Prize for his work) for being good at this economics stuff? If a Nobel-winning physicist was writing about physics, you wouldn't dismiss it because the physicist's politics don't agree with yours. Ditto Nobel-winning chemist writing about chemistry, etc.; why should economics be different? Also, his point about BitCoin…

>> If a Nobel-winning physicist was writing about physics, you wouldn't dismiss it because the physicist's politics don't agree with yours. First of all, Physics and Economics are two different things. Physics tends to be about facts, Economics is more about opinions, views and theories. It's not because we're not Nobel Prize winners that we shouldn't disagree with the author, and I'm sure there are many well-known e…

Economics is about models that are verified by past events, and further tested through their ability to predict future outcomes. This is the opposite of pure opinion. The fact that many pundits ignore this doesn't make it go away

Re: Bitcoin and positive vs. normative economics

#180

Post by natrius »

slurry wrote: post #162
prutschman wrote: post #142

Earlier quoted context omitted.

> I am not about to take out a loan in a hard currency when perfectly good inflationary currencies are easily at hand. Assuming the interest rates are the same, I'd agree. Would they be?

> Assuming the interest rates are the same, I'd agree. Would they be? I doubt they'd be the same in either nominal or real terms. But that's a side issue. You could already do what you're talking about with gold. A bank could offer gold savings accounts that pay interest on gold loans. They don't do it. Borrowers are deflation-averse and no one wants to deal with the exchange rate fluctuations. BTC has some legit use…

When gold was the primary currency, there were interest-bearing gold deposits. When paper currency was pegged to gold with full convertibility, interest-bearing currency deposits were effectively interest-bearing gold deposits.

When Bitcoin is the primary currency, there will be interest-bearing Bitcoin deposits.

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