Bitcoin makes journalists say stupid things
self-evident.org
self-evident.org
> The growth of the Internet will slow drastically, as the flaw in "Metcalfe's law" -- which states that the number of potential connections in a network is proportional to the square of the number of participants -- becomes apparent: most people have nothing to say to each other! By 2005 or so, it will become clear that the Internet's impact on the economy has been no greater than the fax machine's.
> As the rate of technological change in computing slows, the number of jobs for IT specialists will decelerate, then actually turn down; ten years from now, the phrase information economy will sound silly.
I don't know what his track record is on technology in general, but dismissing something as important and revolutionary as the Internet makes me seriously wonder about his ability to understand the impact of new technologies.
If we look back 10 years from now, BitCoin could either be hugely successful or a mere afterthought. I'm not going to hold anyone accountable for being "right" or "wrong" about predicting its future. But I suppose this is why sensationalist journalism works.
Technologically, it's pretty amazing. People who try to attack it on technological grounds are probably wrong.
Economically, it's a different story, and it's about the economics that economists are most concerned and most informed.
Yep, he proved that several times when he wrote about the imaginary Euro crisis.
what does it say about a person who is dismissive about the way technology can affect/influence human behavior?
what makes him an expert? is it because he panders to what is the status quo (the ever-present monopoly of sorts)? is it because he engages in thoughtful exploration of ideas and notions with a larger community and helps bring about great discussion? is it because he has a degree? is it because he has done something notable for humanity?
The fax machine was a sea change when it was introduced. It absolutely was the one communications device every business had to have. It revolutionized white collar businesses and the sales process (imagine! transcontinental signed sales agreements within minutes!). Hell, the catalog industry (upon which the founding laws of e-commerce rest) owes its existence to the fax machine! Krugman misunderstood how important the fax machine was to businesses.
And he was right about the number of jobs for IT specialists, which has been declining for the past decade as IT operations are increasingly outsourced (even as other technology-related fields programming/design/etc have vastly grown) to foreign countries or specialized operators (i.e, Google Apps, Office 365, Amazon AWS, Salesforce, etc).
With relation to IT jobs, wow that is one hell of a stretch.
From what I recall, his statements basically amount to saying that using Bitcoin as the basis for the economy is a bad idea because it would hurt macroeconomic developments.
Those are very different things, and obviously Krugman is much more likely to accurately predict the latter than the former.
First, I have never owned any bitcoins, nor do I own any now. It is a fascinating and massive experiment, and I am quite happy to remain an observer rather than a participant.
Second, I suspect I know more about economics than you think (more a response to pico303 than to you). Obviously the deflationary argument is one of the strongest. The others are mostly noise, but wow is there a lot of noise.
I do wonder, though... What would happen if someone were to create something like Bitcoin but with, say, crowd-sourced monetary policy instead of a finite supply?
But yeah, great reaction piece, +1 for excellent fulminations.
As far as I am aware there isn't any real debt owed in Bitcoin. So everyone who uses it has some positive value of Bitcoin. That means each and every one of them would individually benefit from widespread deflation, but that would have a negative long term impact on the currency as a whole. I am not sure if I trust the public to make the right long term monetary policy decision over something in their own personal interests.
People absolutely do loan each other bitcoin with high interest rate. Unless you meant something different for "real debt".
I'm not arguing for it or against it, I agree with you that it is fascinating. However, my casual observation is that the pro and con of being in the wild wild west is that you are in the wild wild west.
Sure there is. Someone can sell insurance, and you can choose to pay for it.
> (at least not 100%)
Perhaps not, but I wouldn't call the FDIC's insurance "100%" either. I doubt it would take very many simultaneous bank runs for problems to arise, even with the FDIC.
> otherwise half of all circulating BTC would be in an insurer's accounts
I'm not sure why half of all BTC would need to be in insurers' accounts, and I'm not sure why that would be an inherent problem even if it were the case.
Some assumptions: 1. Bitcoin insurance is a viable business; 2. People will trust the insurer.
PS. You will enjoy reading this post on the origins of money, in which among other things the author analyzes the common properties of many commodities used as money throughout history -- including not just gold and silver but less-well-known materials like wampun shells, ivory beads, and ostrich egg shells: http://szabo.best.vwh.net/shell.html
I'm curious as to the foundations of the benefits of inflation. I understand the principle that it discourages hoarding currency because your hoard decreases in value, but I'm not convinced that the net result is good for an economy. Wouldn't any method of hoarding satisfy the hoarders. Right now that seems to be gold.
The other aspect I find interesting is the Number of BitCoin. In one Sense there are A=21Million Bitcoin. In another sense there are B=11Million because that is the potential maximum in circulation right now. There is also C=??? Which is the amount of Bitcoin actively in circulation now (C = B - BitcoinHoarding).
Which of these should be the basis of a currency valuation? Only A can be considered deflationary (until 2140 anyway) from the principle that the quantity of bitcoin is not increasing but the economy is(hopefully).
In the past when we were using gold, like during the Civil War, we couldn't pay soldiers so we went to greenbacks (paper money like today). That allowed the soldiers to get paid so we could continue to fight the war. Gold obviously has a physical practical limit that can be traded and transfered. When a gram becomes worth so much it buys a house that makes other purchases of food and bills become impractical and people stop buying, and when building a billion dollar construction project moving it and protecting it has another set of problems and overhead. Bitcoin does not have the division problem--a single coin can be divided into pieces 10^8 pieces as the code currently works. That can also be changed in future versions to be divided even smaller. Ie, when one bitcoin can buy a house, you can just pay 0.0000001 for your stick of gum. So, we are then left with the argument, "Oh My God people won't buy because of the psychology that 0.01 coin today that currently buys a pack of gum being able to buy a car in the future." But, that's almost true now with savings and stocks and people still spend their money today and go into debt. Everyone knows if you save starting in your early 20s compounding interest it will be worth a ton more in 10 years, 20 years, etc.
Loans clearly have issues in a deflationary system. If you loan someone $10 today and that's worth $100 tomorrow how do they ever have a chance to pay it back? Payback would have to be on some growth rate where you owe "less" the longer the life of the loan with some interest built in. Venture Capital also would have issues, but if the rate of return on investments is greater than growth of the currency price that wouldn't be an issue either and one would expect it to stabilize over time.
Inflation is built into the current model to encourage investment and prevent concentration of capital. Clearly, given the wealth divide that isn't working (blame exploitation of 3rd world or robots). The argument from the anarcho-libertarians and socialist-libertarians is to try something new.
"Monopolies aren't great for society. So we have trust busters in government whose job it is to keep the monopolies in check. But they don't do that so well. And our government is pretty good at handing monopolies out. Just look at the cable industry.
A few entrepreneurs in a garage. Or a few hackers on the Internet. They are the best trust busters of them all. Look what open source Linux did to Microsoft (funny that Microsoft contributed m̶o̶s̶t̶ a significant amount of lines of code to the Linux kernel starting in 2009; EDIT: http://arstechnica.com/business/2012/04/linux-kernel-in-2011...). They put a dent in a machine that the government could not. And look at what Lyft, Sidecar, and Uber did to the medallion owners in San Franscisco. They got cabs on the streets when the government could not.
Never doubt that a small startup can take on a huge monopoly. Indeed, it is the only thing that can."
is not quoted in the source material and isn't true. Please provide some proof for this claim.
That's not nearly the same as "Microsoft contributed most lines of code to the Linux kernal"
its like people feeling the need to correct grammar on the internet: most of the time they have nothing else to add to the discusion…
No tulips were ever exchanged during the mania - only contracts for tulips.
The contracts had near-zero storage costs, near-zero transmission cost (just membership in the trading hall), anonymous ownership (sort of), and the process for generating tulips seems fair to me - the more work you do, the more tulips you create.
(Not that is actually mattered - the entire thing happened during the dormant season of the tulip, and no one actually grew any.)
The biggest problem right now with these kinds of articles (this one included) is that while yes, they are dramatic, they are technology-focused. We're not getting a lot of economists writing on Bitcoin. Paul Krugman has written a bit that I think is spot on.
Every article I read seems to compare Bitcoin to other currencies and say it's the same because those currencies are made up too. This is a patently false statement, and why we need more economists involved. Real-world currencies are valued on the GDP and credit-worthiness of the nations that issue the currency. Bitcoin lacks this fundamental property. As it stands, Bitcoin is more like gold or the old tulip craze: it's based on the desire of those involved to have it.
As Paul Krugman indicates, Bitcoin is actually a pretty bad currency. It's difficult to convert to, few places accept it as currency, and worst there's rampant speculation on the fictitious value of the currency. Take the exciting tech out of the picture, and you've got a currency that is about as interesting and useful as the Zimbabwean dollar.
For example, one author writes about how he purchase 92% of a single Bitcoin for $130. One site I found that accepts Bitcoin will send you a free t-shirt if you spend more than 1.5 Bitcoin. So if you spend over $200, they'll send you a $10 t-shirt. What an incentive. And I'm not sure how the site deals with the wildly fluctuating value of the currency.
I know banks and governments don't always manage money well, but there is something to be said for the regulation and support we do get from traditional currencies. If the USD fluctuated like Bitcoin, the US economy would probably collapse.
Needless to say I've decided to just go with plain credit card transactions in our project, and stay away from this volatility and uncertainty.
I'm not sure this is a fair criticism because literally every non-governmental currency would suffer from this problem at first. There is nothing inherent to bitcoin that precludes it being easy to convert to or being widely accepted. In fact, there are qualities inherent to bitcoin that make it easy to convert to and to be widely accepted. The problem is that there is no appropriate frame of reference for these qualities because there have been so few digital currencies in the history of the world.
A fairer assessment might be that bitcoin is a fairly bad currency at the moment but has the potential to be a pretty great currency. The same is not true for the Zimbabwean dollar.
I agree, however, that currency speculation is currently the biggest problem facing bitcoin (by far).
There's no such thing as fair criticism here. If it's a valid critique that any non-governmental currency would share then chalk up a win for governmental currencies.
Right, but ultimately thats just a confidence judgement. The 'credit worthniess of a nation' is just a consensus judgement by the markets. Hence Money is based on confidence and consensus. With most currencies that fact is hidden away, but with Bitcoin its just made more explicit.
I'm pretty sure the US govt is here to stay, though.
We're not getting a lot of economists writing on Bitcoin.
Postscript:
Computer science has delivered the goods in a way that economics just hasn't, as even Krugman admits[1]:
...the widely accepted proposition that events like those
of the 1930s could never happen again. But even pessimists
like me, even those who realized that the age of bank runs
and liquidity traps was not yet over, failed to realize how
bad a crisis was waiting to happen...
What you can criticize economists for – and indeed, what I
sometimes berate myself for – is failing even to see that
something like this crisis was a fairly likely event.
My view is that improvements in monetary policy, though
certainly not the only factor, have probably been an
important source of the Great Moderation. In particular, I
am not convinced that the decline in macroeconomic
volatility of the past two decades was primarily the result
of good luck, as some have argued, though I am sure good
luck had its part to play as well.
[1] http://krugman.blogs.nytimes.com/2012/03/05/economics-in-the...
[2] http://www.federalreserve.gov/boarddocs/speeches/2004/200402...
Compare y2k to 2008 banking crisis?
2008 banking crisis: terrible things happened even with (or because of) the intervention of economists.
We have politicians who have misunderstand and politicise economics. Similar to how evolution is somehow now a liberal theory.
New Keynesian economics is not liberal or conservative. It says, in hyper-simplified form, save (conservative) in good times, and spend (liberal) in bad. Right-wing Central Europe is one of the few in recent memory to have implemented both legs. Politically conservative trade theory, about which there is consensus amongst economists, earned left-wing Paul Krugman his Nobel Prize.
Myth of the Rational Voter [1] explores issues economists have put to rest but the public refuses to accept there is consensus on. Similar to how the masses insist on perceiving "hackers".
[1] http://www.amazon.com/Myth-Rational-Voter-Democracies-Polici...
Besides, your comment basically says that you don't have data to support your position, but you have a hunch, so we should just trust you on this.
Now today the question is whether the "mixed economy" which allows unlimited state intervention (which does indeed lead to Cyprus) is better than fettered government and unfettered capitalism. We're going to find out.
Please don't destroy discussions.
As for seasteading, there have been plenty of experiments testing the theory that a tiny nation can become very rich from being a laxly-regulated, tax-free place for rich foreigners to park money. It works very well until you try to generalise the results to larger economies and end up like a certain Mediterranean tax haven with a non-state currency...
The trouble with dismissing the knowledge accumulated by those whose experiments failed is the risk of being condemned to repeat them...
And those experts were at least operating profitable legacy businesses, so had _some_ empirical proof of their claims (to wit: their products worked, even if not as well as the Valley's).
Now, lo and behold, we have a direct test of open source software vs. Krugmanesque proclamations. Krugman is simply not qualified to evaluate Bitcoin. You think he knows SHA-256 from a hole in the ground? He'll say it won't work just like legacy payment providers thought Paypal wouldn't work. And then he'll start advocating that it be prosecuted once it does threaten him, and then he will lose.
If someone can reliably predict macroeconomic trends and manage risk, what's their excuse for not being filthy rich? If they're not rich, I don't trust their tallent. If they are rich, I trust they won't give away their secret formula.
He also suggests that people outside the field are making better contributions, but I haven't gotten to the part in the book where he argues that in detail.
I'd say that computer science has shown similar failures when dealing with phenomena that are as large-scale and chaotic as economics. Artificial intelligence is one such area in which it has been difficult to produce results.
Using the word "system" as broadly as you have in this post seems like a recipe for shaky reasoning.
Economists have written on the mechanics of a Bitcoin-like currency, in essence, a fixed-supply alternative anonymous fiat "currency". The conclusion is that it will not be fulfilling its anarchist ideological aspirations by unseating the dollar. But it may have a place as an electronic equivalent of cash with appeal for illicit (read: extra-state) transactions.
My dismay with the Bitcoin discussion, as an economist, has been the level of confidence everyone comes with. Whether it is dismissing the last century of economics off-hand or arguing one position in a rich debate with dogmatic passion, it is difficult to have an informed conversation. This comes from both sides, e.g. deflation is good for a currency versus deflation causes a deflationary spiral, both highly contentious statements at best, comes up in every HN bitcoin discussion.
You need to go back to papers written by F.A Hayek criticizing Keynes in the 30s to get any serious academic discussion of the benefits of a fixed money supply. His critique of Keynes' idea of the "Paradox of Savings" is good, also the later paper he wrote: "The Denationalization of Money", which explores privately issued competing currencies is pretty interesting.
"If it were possible, as has been repeatedly asserted in recent English literature,[114] to keep the total amount of bank deposits entirely stable, that would constitute the only means of getting rid of cyclical fluctuations. This seems to us purely utopian. It would necessitate the complete abolition of all bank money — i.e., notes and checks — and the reduction of the banks to the role of brokers, trading in savings. But even if we assume the fundamental possibility of this state of things, it remains very questionable whether many would wish to put it into effect if they were clear about its consequences. The stability of the economic system would be obtained at the price of curbing economic progress. The rate of interest would be constantly above the level maintained under the existing system (for, generally speaking, even in times of depression some extension of credit takes place).[115] The utilization of new inventions and the "realization of new combinations" would be made more difficult, and thus there would disappear a psychological incentive towards progress, whose importance cannot be judged on purely economic grounds. It is no exaggeration to say that not only would it be impossible to put such a scheme into practice in the present state of economic enlightenment of the public, but even its theoretical justification would be doubtful."
He's basically apologizing for finding all these flaws in the monetary system and central banking. He was convinced, at least at this point in his life that he could reason with the financial system to resolve these issues through better understanding. That's the interesting thing about Hayek. He was not opposed to the structure of the financial system out of ideological conviction but just that he had enormous insight into the dynamics of the system and stated his understanding without editing or simply repeating the conventional wisdom.
Note that a lot of Bitcoin enthusiasts plough through Keynes to the value of debt. This, on the other hand, was answered by the Battle of Waterloo, where the City of London financed British army beat the initially superior French.
The main thing is that since hundreds of millions of people use the USD and you can use it to buy many goods and services, it's difficult to sway the opinions of a large chunk of the population that use it so any change in value will be slow. Bitcoin on the other hand has a much smaller user base so its volatility is much larger.
If this ceases to be a credible threat, it's actually quite amazing to me how quickly a government's currency can become nothing but so much paper, which argues strongly against the idea that the value is arbitrary.
This means that the amount of money can fluctuate to accomodate demand at a fixed interest rate, and it does so automatically, in a decentralized way, as part of the regular operation of the system, without any government intervention. This is why it is called endogenous.
Now, there are the goldbugs who think a fixed money supply is somehow morally superior. But my understanding is that experiments with controlling the money supply exogenously in the past, i.e. where the central bank set a fixed size of the money supply as target and tried to enforce that, resulted in a wildly volatile interest rate - simply because the demand for money is volatile, and by fixing the size of the money supply, something else had to budge.
For businesses, a volatile interest rate is bad because it makes planning difficult. This is why central banks now target a fixed interest rate (with volatile, endogenous money supply) - it simply is better for the economy.
Aside from the crazy waste of energy, this is probably the most important argument against basing the economy on Bitcoin.
This sudden uprise of awareness and the news coverage that came with it, surely made me even more skeptical about mainstream media, as no one is to be trusted. Financial Times, Bloomberg and all the big ones that have such a tremendous amount of weight behind them, are in the end inseparable from blogspam, as they have the same sensationalistic tendencies and didn't do their homework, at all. It's not easy to digest the phenomena Bitcoin, but at least have the decency towards your followers of not commenting on it until you have established at least a semi-understanding of the matter.
Even in the rare cases where true expects a interviewed we rarely get a completely objective opinion. This, I believe, is either because the journalist are trying to steer the conversation into a direction he or she understands or because it make for more "exciting" news.
It's truly sad that the media believes that it should dumb down content, or make it more "easily available" at the cost of the truth and correctness. I don't think the average media consumers are so dumb that it's necessary and if they are presenting the with incorrect information surely can't be helping the issue.
Everything you read in the newspapers is absolutely true except for that rare story of which you happen to have firsthand knowledge. —Erwin Knoll
I have this discussion with people about Wikileaks all the time. "Assange is such an arrogant prick" "Oh? What did he say that made you think that?" "Uh, I dunno, he just seems like a prick every time I read something about him" "So you've never actually sat down and listened to him speak for more than 10 seconds?"
Thus, we see a lot of tech journalists busy making a trash job of nineteenth-century economics while FT Alphaville finds its analyst who made easy work of dynamically-tranches credit products stumped by cryptography 101. It will take time for the theoreticians on either side to get a handle of things, and a good deal of hot air will be expended in the process.
I can't say I'm not excited about this - it's a grassroots experimental verification of a lot of economic theory. But if people are ploughing savings they cannot afford to lose into the currency out of anger against the present economic situation, ideology, or a mis-understanding of economics, that is a problem, and it is irresponsible not to at least try and give fair warning.
It's very rarely been approached, by journalists, as "here's an interesting technology. It's a little kooky, but it's getting more popular. I wonder if anything interesting is here?".
Instead, you get either intense fandom or intense vitriol.
I thought the priceonomics coverage was quite good, but I tend to look at it through an economics lens rather than a particular idealism.
In crisis situations, the media reports whatever rumor is floating in the air at the time, just to fill the airwaves. Regarding the Bitcoin exchange rate surge since the beginning of the year, the media conflates it with "concerns" over the Cyprus situation, just to make news. Regarding markets in general, the financial media loves to say that the Dow moved down on "worries" over this or that, when in reality the price action usually has nothing to do with that imaginary concern.
Since Bitcoin is difficult to understand for most, it's asking WAY too much of the media to report on it correctly. How often have you seen quotes from "experts" over their concerns that Bitcoin will get "hacked" and become worthless? How often do they refer to "shares" of Bitcoin?
Have you ever seen a mainstream article about Bitcoin network strength increases / decreases?
[1] http://forums.somethingawful.com/showthread.php?threadid=348...
1. Is "the government is the people" meant to be a criticism?
2. Interesting that in the quote from Felix Salmon that this is criticizing, Salmon never mentions mega-banks or that the size of the bank is related to their civic responsibility. It's the author of this piece who is inserting a bias against "mega-banks", and assuming that anyone who is pro- the existence of banks in democratic society is also pro-mega-bank.
Reporters rarely have the time, intelligence, and information to research and write an accurate report on every subject. There is no Bitcoin correspondant for Bloomberg, just an overworked, underpaid English major.
The fear that is engendered by a non-tangible, value-containing set of bytes of data on a computer in the age of hacker doom-dom is quite likely the extent of what you need to know about its foreseeable viability and should put the current "value rollercoaster" into perspective.
How does the layman NOT lump the early adopters/hype pumpers in with the same crowd vandalizing paypal and credit card companies? So these kids created a currency to reject the system and they think this is the future?
It's like watching some unruly teenagers with a very large potato gun mounted to their friend's back and saying... "This is the future of the postal service. Buy stamps while they're cheap."
It's the emperor's new clothes. That's not a currency. It's barely a digital promise to anonymous posters on 4chan. As long as there isn't anybody with a strong incentive to pull the plug, this thing will continue to eat up every online "watering hole." It's great for silk road, but spare us the hype machine. The only people with incentive are adopters.
They shut that zeek's reqards down in NC and now everyone is hopping on the p2p currency train. Start your own business! Invest in the peoples' coin!
I guess we can debate whether Tyler Cowan is paid to think --- or, as Moldbug puts it, even allowed to think --- and so on/forth in No True Scotsman style until we've narrowed the conversation to "hackers" who think exactly like we do.
http://blog.priceonomics.com/post/47135650437/are-bitcoins-t...
https://medium.com/money-banking/2b5ef79482cb
https://mises.org/daily/6399/The-Moneyness-of-Bitcoins
http://www.forbes.com/sites/timothylee/2013/04/03/four-reaso...
http://jpkoning.blogspot.com/2013/04/bitcoins-plunge-protect...
http://www.econlib.org/library/Enc/CompetingMoneySupplies.ht...
http://www.econtalk.org/archives/2011/04/andresen_on_bit.htm...
so here it is again
99% of people don't give even a remote shit about Bitcoin, nor are they likely to ever purchase any; and, if they do, they will never pay even a perfunctory thought to the cryptographic and economic implications. Because of this, writers have little incentive to pour effort into considering and/or researching the actual nature of Bitcoin.
If they can get away publishing ill-though out arguments and include outright falsehoods in their writing, why would writers opt to incur more work by attempting to write a thoughtful, correct piece?
If the market will tollerate lazy writing, laziness is what the market will get...
They better not. The crypto of Bitcoin is amazing, and Satoshi should get a medal for it.
But it's not important because of its crypto.