Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Krugman on BitCoin

krugman.blogs.nytimes.com

Post reply on HN
Print view View original

21–30 of 306 posts

Re: Krugman on BitCoin

#21

Post by FrojoS »

danenania wrote: post #13

He's just begging the question. That a fixed currency supply creates deflation is not a new insight. The idea that this causes 'hoarding' is highly questionable. Prices in consumer electronics fall significantly every year. Does this cause people to hold onto their money instead of buying computers, tvs, and iphones? Of course not. Why would other types of goods be any different? People still need what they need and…

I don't agree. The falling prices are holing me and many other frugale people back from buying electronics frequently. The reason people buy new electronics so often, is because there is so much improvement and innovation.

Re: Krugman on BitCoin

#22

Post by jbooth »

nandemo wrote: post #17
endersshadow wrote: post #3

Earlier quoted context omitted.

He also touches on a great point: 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. This is where I think Bitcoin fails as a currency. While some people invest in currencies, the point of currencies is to allow goods and services to flow through the economy. Currency is and should not be primarily an investment vehi…

If Bitcoin ever becomes a successful, liquid currency, it will have been partly thanks to the current speculators. They're the ones "mining" the bitcoins. They're taking the risk. In a way, it's similar to gold miners of old. They would invest money in digging and mining for the chance of finding gold. They were in it for the profit. Still, it did benefit other people since there was more gold available for both util…

I think the point isn't about speculators, it's about hoarders. If it becomes a successful, liquid currency, it will be in spite of those hoarding.

Coincidentally, with the market looking like it does, at an individual level it's absolutely the right thing to do to hold them, or at best to slowly diversify out, while still not using it for much purchasing. As long as it seems like the right move to hoard them, and their transactional use is a tiny fraction of the amount hoarded, they're not going to be a successful currency as he defines "successful". Closer to a ponzi scheme and/or asset bubble IMO.

Re: Krugman on BitCoin

#23

Post by endersshadow »

danenania wrote: post #13

He's just begging the question. That a fixed currency supply creates deflation is not a new insight. The idea that this causes 'hoarding' is highly questionable. Prices in consumer electronics fall significantly every year. Does this cause people to hold onto their money instead of buying computers, tvs, and iphones? Of course not. Why would other types of goods be any different? People still need what they need and…

That's not exactly an apples-to-apples comparison. But, to answer your question, "Does this cause people to hold onto their money instead of buying computers, tvs, and iphones?" The answer is yes (with qualifiers). Many late adopters are late adopters because they are holding out for a cheaper price for those goods. From personal experience, I've done this very thing (waiting for prices to come down on a TV before I bought it). I put that money into something with a higher return for the time being.

But, the reason that's not exactly a fair comparison is that the currency itself (in this case, USD) was not deflating. Ergo, my "hoarding" was actually putting it into something with a better return for the time being, which was available because the currency was stable. If the best return I could get was holding on to my money (instead of putting it in some sort of investment vehicle), then that would be deflation.

Re: Krugman on BitCoin

#24

Post by jarek »

onemoreact wrote: post #18
nextparadigms wrote: post #9

Earlier quoted context omitted.

But won't it also encourage people to be wiser with their money, and not waste them on unimportant stuff? If what you're buying has higher value to you than holding the money, then you'll buy it. Isn't overspending what got us into this financial mess in the first place? And getting into too much debt, whether it's the Government itself or the people. Also the deflation effect should only be this great in the early y…

Let's say the total value of Bitcoin's in the world in 15 years is the same as the total value of Australian dollar's (AUD) in the world. Based on the rate of production it's going to take a massive amount of deflation to get there. That might make Bitcoins a good investment but it also makes them a terrible currency. (~261 billion AUD * 1.1USD/AUD / 21 million bitcoins = 13,600$/bitcoin.) All of which is beside the…

I'm not sure I see the value of a pure digital currency, anyway. My dollars are digital when I want them digital (paycheques, moving between accounts, bill payments), and physical when I them physical (ATM withdrawal, quick cash IRL transactions).

Re: Krugman on BitCoin

#25

Post by gwright »

dasil003 wrote: post #6
userulluipeste wrote: post #4

Had read it. It's not serious at all. The arguments there are out of touch with reality. For example: "What that means is that if you measure prices in Bitcoins, they have plunged; the Bitcoin economy has in effect experienced massive deflation." For this argument alone, one may look at https://www.bitcoinmarket.com and see exactly what kind of person Krugman is.

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.

I'm not sure Krugman's reputation is as reputable as you suggest. Some might even call him a "froth-mouthed crackpot hurling ad-hominems". Not me of course, I wouldn't want to hurl ad-hominems in place of a real argument. Better to appeal to authority.

Re: Krugman on BitCoin

#26

Post by aptwebapps »

danenania wrote: post #13

He's just begging the question. That a fixed currency supply creates deflation is not a new insight. The idea that this causes 'hoarding' is highly questionable. Prices in consumer electronics fall significantly every year. Does this cause people to hold onto their money instead of buying computers, tvs, and iphones? Of course not. Why would other types of goods be any different? People still need what they need and…

The idea that this causes 'hoarding' is highly questionable.

It can cause hoarding. It's not a given. But it can get into a downward spiral.

Does this cause people to hold onto their money instead of buying computers, tvs, and iphones? Of course not.

Are you sure? No one would argue that all people would stop buying all consumer electronics, the question is: what would sales be like with stable prices? I don't know how to answer it but I don't know how you can say for sure that sales are not lower than they would be with stable prices. Or rather, I am sure it is possible to construct models to try to understand the relation but I am doubtful that you have done so or have a particular model in mind. Please correct me if I am wrong.

The difference with a stable currency supply is savers and fixed income earners wouldn't have their purchasing power sucked away from them year after year--on the contrary, they'd become continually wealthier as the economy grows around them.

Generally inflation is priced into interest rates. If you look at countries with much higher inflation they tend to have much higher basic interest rates.

Krugman's arguments in the post are pretty brief, he's just stating his opinion and not conducting a thorough examination. Likewise, I don't find your arguments very persuasive but that doesn't mean that you are wrong and he is right.

Re: Krugman on BitCoin

#27

Post by pnathan »

One thing that might be interesting to consider is wealth distribution over population growth.

Thought experiment:

Say our money supply is fixed (10 million dollars), and there are 1 million people in our economy. Everyone averages out to holding about 10 dollars. Everyone goes on a massive baby-making spree, and in 10 years, there are still 10 million dollars, but 2 million people in the economy. Average wealth is $5 per person. Either prices dropped (unlikely, demand has doubled in this ideal world), or everyone is averaging to be poorer.

To my mind that thought experiment demonstrates the need for the supply of money to keep pace with population growth.

I might be wrong, I am not an economics student, and there might be angles I've missed.

Re: Krugman on BitCoin

#28

Post by narkee »

sirclueless wrote: post #15
userulluipeste wrote: post #4

Had read it. It's not serious at all. The arguments there are out of touch with reality. For example: "What that means is that if you measure prices in Bitcoins, they have plunged; the Bitcoin economy has in effect experienced massive deflation." For this argument alone, one may look at https://www.bitcoinmarket.com and see exactly what kind of person Krugman is.

You basically interpreted this backwards. When Krugman says that the bitcoin economy has experienced deflation, he means that a bitcoin is worth more now than it was in the past. The graph on bitcoinmarket certainly shows this. If I wanted to buy a motorcycle in bitcoins in 2010 I would have needed several thousand. Now I only need a few hundred. Which means that I would have been stupid to spend my bitcoins last yea…

>And most economic theory says that the more people spend money the healthier the economy becomes

Doesn't that seem like a bizarre theory since the economy is in shambles and debt-financed spending seems to be getting higher and higher (consumer/credit card debt, etc.)

I thought people were supposed to be encouraged to save, pensions, 401k and Roth IRAs, etc. Is overall economic health inversely related to individual economic health?

Re: Krugman on BitCoin

#30

Post by danenania »

sirclueless wrote: post #20
danenania wrote: post #13

He's just begging the question. That a fixed currency supply creates deflation is not a new insight. The idea that this causes 'hoarding' is highly questionable. Prices in consumer electronics fall significantly every year. Does this cause people to hold onto their money instead of buying computers, tvs, and iphones? Of course not. Why would other types of goods be any different? People still need what they need and…

Fair enough, but I think most economists would agree that we shouldn't be trying to make savers and fixed-income earners wealthy in the first place. We should make it economically advantageous for the people with money saved up to invest it into the economy.

You don't need to take away people's purchasing power to encourage them to invest. If an economy is growing, there will always be higher returns in investment than in holding cash. Monetary expansion encourages unsustainable consumption and debt accumulation. Why is this preferable to saving? When people save, they don't do it with the intention of one day dumping the money in a lake. They are still going to use the money, just on a longer time scale for a better-considered purpose.
Post reply on HN