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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

#341

Post by Canada »

roblev wrote: post #321
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. Sadly it is not so easy to make money this way, the forward exchange rates will cancel out any gain from the interest earned in the inflationary currency. Otherwise everyone would do this. You can make money doing this but really you are just taking a bet on exchange rates, you can easily lose money a…

If you plan to spend your investment on rent, food, or fuel then Treasuries are a losing investment for sure. At best they reduce the amount of loss compared to holding cash.

Re: Bitcoin and positive vs. normative economics

#342

Post by XorNot »

alttab wrote: post #316
NickSharp wrote: post #249

Earlier quoted context omitted.

Our current voting system has an emphasis on the secret ballot. There are records of which polling place a person voted at, and whether they showed up to vote, but (in theory) there's no way to tell which of the thousands of ballots from that polling place match to which individual voter.

But there is also no way for us the verify a valid and safe vote. Especially with our lively die bold machines. I'll take the thugs, give me a fair vote.

Or you know, just get rid of the diebold machines and do a hand count?

Re: Bitcoin and positive vs. normative economics

#343

Post by jshen »

icelancer wrote: post #324
jshen wrote: post #289

Earlier quoted context omitted.

That's why you shouldn't follow Austrian economics. Edit: also, Austrian economics is like pseudoscience, it isn't representative of real economics

Some would say that the Keynesian model is psuedoscience for having untestable priors. I don't have a dog in the fight but neither do I think your screed against Austrian economics is an airtight argument.

Which model fits reality better? I think the answer is clear given the evidence.

Edit: what are the priors you are speaking of.

Re: Bitcoin and positive vs. normative economics

#344

Post by XorNot »

dnautics wrote: post #188
chipsy wrote: post #89

Earlier quoted context omitted.

I think Bitcoin does have a soft floor because that cost would form the natural price target for a miner trying to trade, but the cost is avoidable by switching to proof of stake as done in PeerCoin and Nxt. The crypto problems solved in Bitcoin don't have the intrinsic utility of a precious metal; you could make a better argument for something like PrimeCoin, which attacks a major computation problem, having this ki…

"The crypto problems solved in Bitcoin don't have the intrinsic utility of a precious metal." So gold was used extensively 2000-3000 years ago. Exactly what was its intrinsic utility then? Plating astronaut helmets and high-conductivity, corrosion-resistant electronics? The intrinsic utility of gold was that it was eminently verifable. It's got a characteristic ductility and it was a yellow metal. You could easily ve…

No it wasn't. It was that it was rare, and that it was pretty, and so rich people (the rulers) tended to buy it.

And then, promptly, they also repeatedly ran their economies into the ground by conquering and mining tons more gold, and inflating their currency into worthlessness.

And this happened over and over - the Spanish did it, the Chinese did it, the French did it. Every gold economy before the invention of actual economic thought destroyed itself with gold.

Re: Bitcoin and positive vs. normative economics

#345

Post by icambron »

holmak wrote: post #263
undoware wrote: post #199

Earlier quoted context omitted.

> 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 tota…

Yes, remember that this is a utility calculation. The cool thing about buying Xbox One now is that I can play it now. So let's say these are my options:

* Buy it now for $300 and play it for 10 years

* Buy it in ten years for $30 and play it then

(I have no idea how much an Xbox actually costs.)

So the question is whether that $270 is worth those ten years of playing it. A lot goes into that: what interesting things could I do with $270? How about in 10 years? How much do I want to play the games available for Xbox? Won't all my friends want to come over and play with me? Etc. Buying now might be perfectly rational, depending on your utility function.

"I won't buy it today because it will be cheaper tomorrow" is an argument on the margins. That's why temporary bouts of deflation don't cause everyone to starve to death because they keep putting off buying food.

But those margins do matter a great deal! There's some set of stuff that I really am going to wait on, because I only kinda want them now. There's certainly a discount rate for the Xbox that could cause all but the hardest-core fan to wait. So the deflation spiral doesn't take much to get started.

I'm not saying humans are rational (though I will argue that corporations do better here), only that the Xbox One example doesn't prove they're not, and that it's still consistent with the deflation spiral concept.

Re: Bitcoin and positive vs. normative economics

#346

Post by XorNot »

jjindev wrote: post #252
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…

All currencies rely on belief (like those flats in Monty Python). It is possible that gold could lose global belief, but unlikely, given the long history of belief. The US dollar too could lose faith, but again, a pretty good history of trust. Bitcoin? I think belief and trust battle novelty a bit. Will enough people believe, in 20 years, to power the computations necessary at that point? Or will a more novel and exc…

Gold isn't a currency at the moment. Even if no one wanted gold for its store of value properties, they'd still want it for electronics, science etc. at which point the market would revitalize.

Re: Bitcoin and positive vs. normative economics

#347

Post by onebaddude »

yummyfajitas wrote: post #96
atmosx wrote: post #45

Earlier quoted context omitted.

You seem pretty accustomed to economics. Can you explain how exactly or why would anyone buy any items (that's what currencies are for after all) using a deflationary currency? Then again, it's not a design a flaw - as I once thought - it's a clear choice: Why would anyone would want to own a non-deflationary asset? :-) So actually, in my view, BTC as a currency is already failed. No one will be eager to buy online (…

Can you explain how exactly or why would anyone buy any items (that's what currencies are for after all) using a deflationary currency? Why would anyone ever cash out of any position with a positive rate of return? By this logic everyone should stop consuming and put all their money into SPY, or similar market tracking indices. Yet they don't.

>Why would anyone ever cash out of any position with a positive rate of return?

The opportunity cost of doing so is predictable and calculable, and, really, needs only occur when there are better investments available.

Inflation in a currency is a feature, not a bug.

Re: Bitcoin and positive vs. normative economics

#349

Post by baddox »

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…

> And for further thought, could other types of businesses also be structured in this way?

I'm not sure that this is exactly what you mean, but there are many existing and proposed "businesses" (I prefer the term "markets") built on Bitcoin:

https://en.bitcoin.it/wiki/Transferable_virtual_property

https://en.bitcoin.it/wiki/Trade#Financial

Re: Bitcoin and positive vs. normative economics

#350

Post by novalis78 »

What's quite interesting in this piece from Krugman is that for the first time I hear hime doubt his previous outright negative stance. He slips in some "clues" how he is actually "not trying to be swayed one way or the other" when everything else I have read or heard from him regarding Bitcoin was entirely negative. Maybe he is just trying to keep the door open in case Bitcoin's success will prove him similarly wrong as his funny predictation in 98 where he mentioned that "the Internet is going to disappear in 2005".

Regarding the Charles Stross article, someone else had written a very good counter-piece just the other day:

http://www.ofnumbers.com/2013/12/18/charles-stross-takes-on-...

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