Bitcoin and positive vs. normative economics • Hacker News Board

Re: Bitcoin and positive vs. normative economics

#261

Post by pjbrunet » Sat, Dec 28, 2013, 11:24 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…

Seems it's only decentralized to a degree. Go to the Bitcoin Foundation website, they say they want to keep Bitcoin decentralized. So how much influence does this Bitcoin Foundation have over the future of Bitcoin? No idea. There's only one (unpaid) Bitcoin developer responsible for the whole thing? Sounds like a tremendous responsibility for one person, considering what's potentially at risk. How are changes rolled out, how are changes vetted and to what degree are new changes a threat to Bitcoin's supposed ideals?

Re: Bitcoin and positive vs. normative economics

#262

Post by notahacker » Sat, Dec 28, 2013, 11:26 PM UTC

dnautics wrote: post #213

lutorm wrote: post #197

Earlier quoted context omitted.

That quote from Keynes seems to say the opposite of what you said. Inflation hurts the wealthy much more than the penniless or indebted.

No, keynes says that the middle class will be outraged at arbitrary redistribution of wealth (especially to the wealthy) and the poor will be hurt harder (no comments on whether or not they are outraged). Consider a poor family spending about 90% of their income on day to day expenses; versus a rich family spending 20% of their income - if there's 10% inflation, the poor family will go from a 10% margin of survival t…

The reality is inevitably more complicated than stylised examples: most obviously because wages tend to be directly or indirectly linked to inflation. In general, a person tending to spend virtually all their income within a month of earning it will lose out less than someone who hoards their wealth; if they're due a 2% annual pay rise and the Central Bank is pretty good at keeping inflation within a 2% range they're not going to suffer, particularly not if they can find a decent savings account for the money that isn't paying their monthly bills.

Ultimately, calculations of the alleged losers of moderate positive and predictable inflation are meaningless without taking into account its positive sum effects: when "bury it under the ground" isn't an acceptable investment strategy earning average returns, more real goods and services will be produced.

Re: Bitcoin and positive vs. normative economics

#263

Post by holmak » Sat, Dec 28, 2013, 11:31 PM UTC

undoware wrote: post #199

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. Good luck with that. You've just said something along the lines of, "we'll just have to figure out how to live with terminal cancer." Now, I'm no economist, but deflation is standardly seen as really, really bad, and for good reason. It's not just 'the opposi…

> Ask yourself: why buy today what can be bought tomorrow cheaper?

I know the the correct, rational answer to this question: "I won't buy it today, or ever, because it will always be cheaper the next day." (And then the deflationary spiral begins!)

But if this is really true, why has anyone bought a Playstation 4 or Xbox One? They will undoubtedly be cheaper in two or three or ten years. Well, consumers might be totally irrational; what about firms? Why has any company in history ever bought a computer when the price of computing power has been falling rapidly and (mostly) predictably for fifty years?

I don't think the question "Why buy today what can be bought tomorrow cheaper?" fully explains the behavior of people in the face of increasing purchasing power; there seems to be something else going on. Any thoughts?

Re: Bitcoin and positive vs. normative economics

#264

Post by loceng » Sat, Dec 28, 2013, 11:31 PM UTC

001sky wrote: post #228

loceng wrote: post #221

Earlier quoted context omitted.

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 !

Indeed, they didn't do anything for those values to be increasing 'exponentially.' And landlord and rents cause problems such as gentrification and a reduced quality of life for all, among a few of the core problems.

Re: Bitcoin and positive vs. normative economics

#265

Post by DrJokepu » Sat, Dec 28, 2013, 11:37 PM UTC

greyman wrote: post #181

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…

I am not a libertarian and do not have a political agenda, but it is imaginable that certain parts of the government could be replaced with the structure like this one. I don't know how the transition could happen, but at the end, the mining in the network will be done by citizens, bitcoins will be named "bitvotes", and every citizen will mine those bitvotes, or they could be distributed fairy (one bitvote to each ci…

Voting is a solved problem. I’m not saying that the idea of using bitcoin technology to solve problems beside monetary systems is a bad idea (in fact, I think it’s a very interesting concept), but really, democracies around the world already have established and efficient voting systems that work well enough.

Re: Bitcoin and positive vs. normative economics

#266

Post by MagicWishMonkey » Sat, Dec 28, 2013, 11:38 PM UTC

natrius wrote: post #51

mapgrep wrote: post #33

Earlier quoted context omitted.

>Hyperinflation would make it impossible for the Federal Reserve to buy up enough dollars to stabilize the value of the currency Even if this is true, where is the evidence that we're in imminent danger of hyperinflation? Despite mounting public debt, U.S. inflation has remained incredibly low since the start of the financial crisis four years ago, as has the interest rate that must be paid by the government to issue…

We weren't in imminent danger of hyperinflation. I think mass adoption of Bitcoin will cause hyperinflation. If every merchant you patronize today accepted Bitcoin, would you rather have Bitcoin in your bank account or dollars? I'd rather have Bitcoin. They're easier to transfer, they can't be counterfeited, and their supply can't be manipulated. If every merchant accepts Bitcoin and every consumer agrees with my log…

There are a limited number of bitcoins that can be mined. Would inflation even be possible once 100% of coins are in circulation?

Re: Bitcoin and positive vs. normative economics

#267

Post by mrb » Sat, Dec 28, 2013, 11:39 PM UTC

thaumasiotes wrote: post #257

mrb wrote: post #245

It boggles my mind that Krugman continues to fail to see the point. I am not the only one who has noticed his blindness [4]. Or is he deliberately avoiding discussing certain aspects of Bitcoin (notably as a payment processing platform)? "Underpinning the value of gold is that if all else fails you can use it to make pretty things." This is a very weak and in fact invalid argument. I can't believe Krugman is quoting…

Your numbers are badly off. Jewelry is the use referred to when Krugman says "you can use it to make pretty things". (Gold in industrial use is generally invisible). Gold isn't used in jewelry because it's expensive. It's used because it's pretty, it's soft and workable, and it doesn't tarnish. And it's gentler to your skin; my sister's ears are too sensitive to wear cheap nickel earrings. Now, I agree with you that…

You misunderstand me. I know he is talking about jewelry. My point is that people are buying gold jewelry mostly because it is expensive. Yes gold has certain properties, but there are other precious metals with similar properties (platinum, etc). So given the choice between similar metals with similar properties, people will tend to use the most expensive one for jewelry.

In other words, Krugman's argument is circular (gold has value because it has value).

Re: Bitcoin and positive vs. normative economics

#268

Post by icambron » Sat, Dec 28, 2013, 11:40 PM UTC

prutschman wrote: post #142

slurry wrote: post #125

Earlier quoted context omitted.

Inflation is a function of money supply and velocity. If everyone adopted bitcoin, the velocity of the dollar would approach zero. Which means that inflation would go down, not up. And yes, I would rather have my [savings] account in a hard, non-inflationary currency. On the other hand, I can only earn interest when someone is willing to take a loan in the currency and pay interest on it. And I am not about to take o…

> 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?

This is an important point, because interest rates would exactly make up for the undesirability of the inflationary currency; i.e. the inflation risk would just be "baked into" a lower interest rate for the dollar-denominated loan. Unless you had a substantially different inflation risk tolerance than society as a whole, you'd be neutral about what currency to make the loan in.

Same goes for the borrower and deflation risk.

Edit: I guess if the deflation risk tolerance for the borrower and the inflation risk tolerance for the bank are asymmetrical, then you would just end up with being able to loan one or the other. I suspect, per Slurry's point, that it's BTC that loses here.

Re: Bitcoin and positive vs. normative economics

#269

Post by RoboTeddy » Sat, Dec 28, 2013, 11:40 PM UTC

pjbrunet wrote: post #261

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…

Seems it's only decentralized to a degree. Go to the Bitcoin Foundation website, they say they want to keep Bitcoin decentralized. So how much influence does this Bitcoin Foundation have over the future of Bitcoin? No idea. There's only one (unpaid) Bitcoin developer responsible for the whole thing? Sounds like a tremendous responsibility for one person, considering what's potentially at risk. How are changes rolled…

Whoever who convinces 50+% of the miners to adopt their version of the software wins.

The core developers can commit code and make releases that do whatever they want, but if they e.g. tried to pay all transaction fees to themselves, miners wouldn't install the new version and someone would fork the project.

How much control does any open source developer have over the projects they work on? Linus seems to have pretty tight control over Linux, but if he started messing up, he'd lose his position pretty fast. Likewise, the developers have a lot of control, as long as they are effective and behave well.

Re: Bitcoin and positive vs. normative economics

#270

Post by azernik » Sat, Dec 28, 2013, 11:42 PM UTC

forgottenpaswrd wrote: post #218

" I try to get them to explain to me why BitCoin is a reliable store of value" I don't believe that BitCoin is a reliable store of value like the dollar is not a reliable store of value. I went to the US after a year to visit family(I live in Europe) and was surprised how much prices had gone up. Probably you don't see that when it is incremental, but you get to see after some time out. The same happens with civil li…

For the last 30 years inflation (drop in buying power/value of the US dollar) has been between 0.1 and 4.6%; before that, during a period of record inflation, its value fell bye an eye-popping 10-13% a year. By comparison with Bitcoin's volatility, that is an astounding store of value.