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Krugman on BitCoin

krugman.blogs.nytimes.com

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Re: Krugman on BitCoin

#291

Post by sethg »

DennisP wrote: post #289
sethg wrote: post #251

Earlier quoted context omitted.

Deflationary spirals happen when the average price of everything, economy-wide, is going down. It’s perfectly normal for some things in the economy to get cheaper while other things get more expensive. Consumer technology is conspicuous and the way it gets cheap is conspicuous, but it accounts for a small proportion of what the average American spends money on. (The average American spends a small proportion of his/h…

Sure, but why does that make the difference? Why doesn't that incentive work the same way when it's one class of products, as when it's all products? Also, there are several periods in American history when we had modest deflation and a booming economy. The Roaring Twenties was one. How did that happen?

Consider the effect on wages.

If computers get cheaper while the average consumer’s disposable income stays constant, then people will just buy fancier computers, or spend less on computers and use their savings to buy more of other things, or be grateful that the cheaper computers make up for rising prices in other things they want (e.g., health care).

If the average price of everything goes down, then the average consumer’s disposable income must eventually decrease; to make up for the lost income, employers will have to either cut wages or lay off workers.

PS: The Roaring Twenties were not always so roaring. There was a depression in 1920–21, and according to the helpful St. Louis Fed graphs, there were two other recessions between 1921 and 1929.

Re: Krugman on BitCoin

#292

Post by webXL »

pessimizer wrote: post #250
webXL wrote: post #247

Earlier quoted context omitted.

And my point was that there was more opinion than useful information or predictions on those op-ed pages. Can you or Frum point out specific examples that might make one conclude that one op-ed page was more reliable than the other? BTW, truth is not biased. 2 + 2 = 4 is not biased. Only people can be biased. Using throw away cliches like that doesn't get us anywhere.

I'm not going to do your research for you, I'm just saying that whether either demonised or praised Bush is irrelevant to the claim that was being made - unless you're making specific claims that Bush will verifiably exhibit the ability to possess a little girl, or to drive the demons out of a little girl into a herd of pigs. Truth is biased; it will ignore every argument you make that contradicts what it knows to be…

The only claim made in the hypothetical question was that either op-ed page could be used to become "informed about the realities of the current economic crisis". I was criticizing that assumption, not whether one was a better source of information than the other.

Bias has to do with how we perceive the world. To say that data has a bias comes from a unique perception of fairness, not the data itself. To exclude relevant data to make a point, which these op-ed pages are notorious for, is a form of bias. More definitions here: http://www.merriam-webster.com/dictionary/bias

Re: Krugman on BitCoin

#293

Post by bji »

notahacker wrote: post #255
3pt14159 wrote: post #119

Earlier quoted context omitted.

You can't have it both ways. Either consumption is encouraged via inflation or investment is encouraged. For example, say that prices were slightly deflationary, as they are with computer equipment, across the board.* I could easily make the case that saving goes up! Why? Well if I took my goldbucks and lent them to you at 1% interest we would both be happy. My total return would be something like 3% per year (2% def…

Actually you can have it both ways. In an inflationary economy there are essentially two viable alternatives: consumption or saving. Holding cash above and beyond the amount needed for liquidity is an irrational preference. In a deflationary economy, it becomes a very valid option which will serve to drive down the other two, particularly investment in productive assets In a deflationary economy, holding cash offers…

Do any desirable economic conditions come out of a deflationary system? What I mean is, is there any economic outcome desired by any world view that is best served by continuous monetary deflation?

If someone wanted the social trend to be towards historic lifestyles, would deflation accomplish that? It's hard to phrase what I am trying to ask so I hope I am being clear. Imagine that someone wanted everyone to live like the Amish. Would persistent deflation accomplish that? Would persistent deflation produce a world where people spend less of their time feverishly trying to make more money and more of their time enjoying what they already have? Would persistent deflation reduce the rate at which we destroy the environment around us?

If inflationary economic systems reward those with money to leverage into investment returns, do deflationary systems reward those who do not? If inflationary systems encourage people to lend out the product of their labor to others to use to create their own wealth, do deflationary systems discourage this, and if so, would the result be that it would be harder for people who are at an economic disadvantage to better their situation? Conversely, would it be harder for people who are at an economically advantageous position to increase their wealth because investment vehicles are less numerous and more risky?

I get the feeling that some people believe that economic growth is an objectively desirable outcome; but must it always be? I do not know exactly how I feel about it, but I feel that it doesn't seem like it should be the given that others seem to believe that it is.

Re: Krugman on BitCoin

#294

Post by DennisP »

sethg wrote: post #291
DennisP wrote: post #289

Earlier quoted context omitted.

Sure, but why does that make the difference? Why doesn't that incentive work the same way when it's one class of products, as when it's all products? Also, there are several periods in American history when we had modest deflation and a booming economy. The Roaring Twenties was one. How did that happen?

Consider the effect on wages. If computers get cheaper while the average consumer’s disposable income stays constant, then people will just buy fancier computers, or spend less on computers and use their savings to buy more of other things, or be grateful that the cheaper computers make up for rising prices in other things they want (e.g., health care). If the average price of everything goes down, then the average c…

First explanation I've seen that makes some sense.

Re: Krugman on BitCoin

#295

Post by Amincd »

jonnathanson wrote: post #281
Amincd wrote: post #261

Earlier quoted context omitted.

People are not all going to hold on to it and not spend. Some people are going to feel that due to hoarding, it won't become a currency, and hence it's not a good investment, and will be more likely to spend.

"...due to hoarding, it won't become a currency, and hence it's not a good investment..." Not necessarily. The prospect that it's not a currency is what makes it attractive to hoarders. Hoarders/investors don't want Bitcoin to be a viable currency; they want it to be an investment commodity. And that's the crucial problem with Bitcoin: its use as a currency, and its use as an investment, are fundamentally at odds wit…

"The prospect that it's not a currency is what makes it attractive to hoarders. Hoarders/investors don't want Bitcoin to be a viable currency; they want it to be an investment commodity. "

Bitcoin will not be a good investment unless it's a currency. It has no other uses besides as currency. It's not a precious metal with industrial or ornamental uses for example. It's an abstract piece of data that could be useful in trade.

" Both users buy into the market, but they exit the market differently and with different outcomes. And both will only be able to exit the market if there's liquidity in the form of willing new buyers or willing acceptors of BTC in exchange for goods and services. Each of those two outlets has a different liquidity dynamic, too."

An investor who believes bitcoins will drop in value has the option of selling it or trading it for a good/service. Both accomplish the goal of getting out of a depreciating asset.

Re: Krugman on BitCoin

#296

Post by Amincd »

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…

People trading goods and services cannot be a sham. Your definition of a sham is "something I believe will depreciate".

Re: Krugman on BitCoin

#297

Post by Amincd »

dredmorbius wrote: post #65
narkee wrote: post #28

Earlier quoted context omitted.

>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…

Money is a wealth transfer medium. If you're familiar with physics, think of exchange particles associated with forces. In biology, it's similar to blood. I'm not sure a transportation analog works but it might (I need to think about that). Money works when it is exchanged for goods and services. When money stops moving, the economy "stops". There isn't any exchange going on (or there's far less than before). Economi…

The quantity of money does not affect its flow.

It's not like exchange particles, where lower densities leads to lower transfer of force. Any quantity of money, as long as it is divisible, can attain a sufficient value to be useful as a store of value. A medium of exchange merely needs to be a store of value.

Because of the lack of dependence of the value of the total money supply on its total quantity, nominal spending declining due to deflation does not reduce real spending and the market is always able to sell of the merchandise on the shelves, with the value of currency adjusting to what is needed to serve the role of store of value in exchange.

What deflation does do is discourage lending. This is a legitimate economic problem, but it's not that pronounced. The Bitcoin economy would have 3% deflation a year if the world adopted it. This is not drastic and would still allow significant lending.

Re: Krugman on BitCoin

#298

Post by bji »

Duff wrote: post #225
icebraining wrote: post #204

Earlier quoted context omitted.

But Bitcoin has no intrinsic value. So what's the threshold there?

Intrinsic value is set by the marketplace. Right now, the market perception is that prime numbers (or whatever bitcoins are) are scarce, valuable resources.

Bitcoins are not simply prime numbers. They are account balances in a system that distributes the validation of account balances in such a way that is cryptographically secure, trustable, and decentralized. Provably correct, tamper-proof accounting balance sheets are nothing to sneeze at and it was really a stroke of genius to discover the algorithmic means to create such a thing that is the cool thing about Bitcoin.

I personally believe that it will never achieve anything other than niche status as a currency for trading illegal goods; it will be used for other types of transactions, but it will be a very small number of transactions when compared to contemporary financial transaction systems like, e.g. credit cards, or paypal. I say this only because in practical terms it is not very easy to use, and furthermore, its benefit of being pseudoanonymous is also is downfall; very safe for the recipient to receive bitcoins but very risky for the sender to send them since the sender has absolutely no insurance or any recourse in the transaction. There is no authority to appeal to for transactions gone bad, and even if you could sue over bitcoin transactions and the courts would understand them, the pseudoanonymity would make it very difficult to know who to sue.

Re: Krugman on BitCoin

#299

Post by bji »

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…

You would have been stupid to spend the bitcoins last year only if the value of having a motorcycle for a year was less than the accrued value of the bitcoins as they appreciated in value over that time. Because people cannot predict the value of bitcoins over time perfectly, and because the satisfaction of immediate needs/wants is often more important than a greater later return, bitcoins would always be spent even in a deflationary system.

Re: Krugman on BitCoin

#300

Post by pessimizer »

webXL wrote: post #292
pessimizer wrote: post #250

Earlier quoted context omitted.

I'm not going to do your research for you, I'm just saying that whether either demonised or praised Bush is irrelevant to the claim that was being made - unless you're making specific claims that Bush will verifiably exhibit the ability to possess a little girl, or to drive the demons out of a little girl into a herd of pigs. Truth is biased; it will ignore every argument you make that contradicts what it knows to be…

The only claim made in the hypothetical question was that either op-ed page could be used to become "informed about the realities of the current economic crisis". I was criticizing that assumption, not whether one was a better source of information than the other. Bias has to do with how we perceive the world. To say that data has a bias comes from a unique perception of fairness, not the data itself. To exclude rele…

I'm not sure what the difference is between something that would make one better informed and something being a better source of information.
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