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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

#51

Post by natrius »

mapgrep wrote: post #33
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…

>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 logic, hyperinflation of the dollar would occur. Coinbase and its 0% transaction fees will lead to rapid adoption of Bitcoin on the merchant side. I'm less confident about the consumer side, but I see that happening as well.

Re: Bitcoin and positive vs. normative economics

#52

Post by username223 »

ashray wrote: post #18

This title of this post does a disservice to its contents. "Bitcoin is evil' makes it sound like it's a propaganda piece. I went in expecting some of the usual poorly researched allegations that we've been seeing over the past few weeks. But surprisingly, the post does make a few good points. > Placing a ceiling on the value of bitcoins is computer technology and the form of the hash function… until the limit of 21 m…

Maybe some day Bitcoin will be a cheaper way to transfer money than EBT, credit cards, etc. (a few percent). If/when that happens, people will hold Bitcoins for just long enough to complete a transaction -- microseconds -- rather than for however long it takes them to cash out their speculative bets.

Re: Bitcoin and positive vs. normative economics

#54

Post by ubernostrum »

defen wrote: post #46
ubernostrum wrote: post #30

Earlier quoted context omitted.

He poses a question: To be successful, money must be both a medium of exchange and a reasonably stable store of value. And it remains completely unclear why BitCoin should be a stable store of value. And then says he hasn't been able to get an answer to this question, that the BitCoin enthusiasts he's talked to have mostly avoided trying to answer the question, and that he has reason to suspect that BitCoin gets prom…

> To be successful, money must be both a medium of exchange and a reasonably stable store of value. And it remains completely unclear why BitCoin should be a stable store of value. So maybe BitCoin isn't money? We already have something that is a reasonably stable store of value but is not a medium of exchange (gold), so why can't we have something that is a medium of exchange but not a reasonably stable store of val…

Gold is no longer widely used as money, but in the past it was, and was quite successful as a medium of exchange.

His argument seems to be that if you want something to be genuinely useful as money, it has to do both reliably, and BitCoin only seems able to do one.

Re: Bitcoin and positive vs. normative economics

#55

Post by ashray »

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 there.

As such, to an expert in any one of those fields, it's very hard to digest because looking at it from the perspective of one field might suggest it is doomed for failure. But experts tend to look at things from the perspective of their own expertise.

For laymen who might know a little bit about each of those domains, it feels like "Yeah.. this could work..". A simple analogy might be about how hardcore web developers always feel about PHP. They always say it's a pile of garbage and it's bound to self destruct and swallow the earth in the process. However, PHP trudges on with some very large projects and sites under it's belt.. and novice developers will almost never notice a problem with it. Experts can be wrong.

So yes, bitcoin has it's issues if you analyze each aspect of it. But maybe if you zoom out and take an overview it might start to make sense how all the parts get together and even with flaws with each sub-aspect it just might work.

Re: Bitcoin and positive vs. normative economics

#56

Post by pyvpx »

username223 wrote: post #29
smtddr wrote: post #9

>>BitCoin looks like it was designed as a weapon intended to damage central banking and money issuing banks, with a Libertarian political agenda in mind—to damage states ability to collect tax and monitor their citizens financial transactions. So basically it brings an ability to the middle-class that normally only the top 1% have. We know wealthy people use tax loopholes(and a few of them, laundering) and... why do…

"why do the states need to monitor financial transactions?" I hate the "terrorism" BS as much as you, but money laundering and large-scale scamming ( https://news.ycombinator.com/item?id=6972139 ) are actual threats.

like the kind HSBC did in plain sight for over a decade with essentially zero repercussions (the fine was barely enough to break out of 'cost of doing business' territory, so please don't bother with the largest settlement in history uselessness)?

but yeah...bitcoin is bad! cuz...bad people!

Re: Bitcoin and positive vs. normative economics

#57

Post by pdonis »

ashray wrote: post #18

This title of this post does a disservice to its contents. "Bitcoin is evil' makes it sound like it's a propaganda piece. I went in expecting some of the usual poorly researched allegations that we've been seeing over the past few weeks. But surprisingly, the post does make a few good points. > Placing a ceiling on the value of bitcoins is computer technology and the form of the hash function… until the limit of 21 m…

What's the point of a store of value if ultimately it cannot be exchanged for something else?

One can also turn this point around: what requires the store of value to be the same thing as the medium of exchange? The store of value must be convertible into the medium of exchange, but that doesn't mean they have to be the same thing. Yet Krugman blithely assumes that they must be: "To be successful, money must be both a medium of exchange and a reasonably stable store of value." He doesn't even consider the possibility of, for example, an economy based on Bitcoin as a medium of exchange and, say, gold as a store of value. For that matter, he doesn't even bother to mention that very few people actually use dollars as a store of value: people don't keep their retirement funds in cash under the mattress.

Re: Bitcoin and positive vs. normative economics

#58

Post by captainmuon »

> Placing a ceiling on the value of bitcoins is computer technology and the form of the hash function… until the limit of 21 million bitcoins is reached. Placing a floor on the value of bitcoins is… what, exactly?

Doesn't he get that point wrong (like many others)? The mining rate, and eventually the limit of 21 million bitcons places a limit on the supply of bitcoins, not on their value. If bitcoin is successful, it will only keep getting more and more valuable. Its hard to estimate how much, but the total market capitalization will probably that of a commodity like silver, or that of a nation state's currency.

Also, I think bitcoin is not really supposed to be a store of value. Its main purpose is to pseudonymously buy and sell stuff (drugs, cough, cough). It's good enough if it can hold its value for a few hours - if someone builds a nice way to deposit dollars or euros, convert them, and immediately pay with the bitcoins, milliseconds would even suffice. In a market with such a high turnaround, of course, the value represented in bitcoin at a given time will be lower than for e.g. silver or gold, which are supposed to store value for a longer time (and also have applications as a material).

Finally, I don't think bitcoin can replace "real" money. It might have worked a few decades ago when there was a kind of self-carrying growing economy. The only way todays econonmy is still running is because of massive state intervention, which is impossible if bitcoin in the main currency. I mean, we gave up the Bretton Woods system and the gold dollar for a reason...

Re: Bitcoin and positive vs. normative economics

#59

Post by seiji »

mikeryan wrote: post #42
smtddr wrote: post #9

>>BitCoin looks like it was designed as a weapon intended to damage central banking and money issuing banks, with a Libertarian political agenda in mind—to damage states ability to collect tax and monitor their citizens financial transactions. So basically it brings an ability to the middle-class that normally only the top 1% have. We know wealthy people use tax loopholes(and a few of them, laundering) and... why do…

The state monitors financial transactions primarily for tax purposes. I'm guessing a very substantial amount of data they collect is around payroll and sales.

"Monitors" is a bit strong, unless you're talking about actual states. NY/NYC will go after you fiercely if you are wealthy and try to get out of city taxes.

All federal tax information for employees is self-reported by employers. There isn't a huge monitoring infrastructure in place—just required-by-law reporting of what people get paid. Getting paid with not-dollars doesn't change the system.

Re: Bitcoin and positive vs. normative economics

#60

Post by username223 »

smokeyj wrote: post #44
username223 wrote: post #29

Earlier quoted context omitted.

"why do the states need to monitor financial transactions?" I hate the "terrorism" BS as much as you, but money laundering and large-scale scamming ( https://news.ycombinator.com/item?id=6972139 ) are actual threats.

> but money laundering and large-scale scamming are actual threats. Yes, banks launder drug money for cartels. Without the state, who would slap their wrists?

I guess you're trying to be snarky or clever here, but I don't get your point. Maybe you can walk over to your local BofA branch, slap someone's wrist, and feel good about yourself?
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