Krugman's Three Money Pits
bitcoinmagazine.com
bitcoinmagazine.com
> I have had and am continuing to have a dialogue with smart technologists who are very high on BitCoin — but when I try to get them to explain to me why BitCoin is a reliable store of value, they always seem to come back with explanations about how it’s a terrific medium of exchange.
http://krugman.blogs.nytimes.com/2013/12/28/bitcoin-is-evil/
This guy:
> [I]f bitcoin has an intrinsic value, it is as a medium of transferring value globally with almost no transaction costs, an incredible boon to the citizens of developing countries who work in developed nations and currently pay 10% commissions to send home remittances.
You can't say that the man doesn't know his debate opponents.
See also excellent article by Nick Szabo (who is a candidate for being Satoshi): http://szabo.best.vwh.net/shell.html
So are Beenie Babies.
So I think the question people will come to ask themselves, eventually, is: given that the currency is volatile, what amount of it is worth holding anyway just to save me the inconvenience of buying Bitcoins before I go to spend some? The average answer to that, multiplied by the number of people using Bitcoin at all, will, I think, put a floor under the demand for Bitcoin. I don't think it will be a large number per person: maybe $20 worth. But multiply it by a large number of users, and the total number of Bitcoins sitting in wallets -- which, critically, won't get sold even during downward price swings -- may be quite substantial.
Bitcoin was a money transfer tool to move money out of China
That's a huge reason it spiked, and why it stopped spiking (when they shut that down)http://www.nytimes.com/2013/12/06/business/international/chi...
Bitcoin can be used to "move money" only when it's valuable. So it must be valued and collected by some people beforehand, so others can sell it to them in exchange for currencies on the other side of the border.
Back when I used to trade stocks, I discovered an unnerving psychological problem with it: No matter the news related to the respective company, having $100,000 riding on it makes you a cheerleader. I was holding Merck when the Vioxx scandal came out, and I somehow tried to justify that to myself--no matter how many people it killed. I think this phenomenon is common. Okay, so you own worthless hash strings, and because you paid real money for them, you're their cheerleader.
When you sell, you'll be their detractor. That always happens, too.
Does he? Aren't you completely ignoring the utility of the payment network?
Worst of all, the volatility of the Bitcoin market make it a bad place to store wealth. Without the guarantee of price stability, you have to be extremely risk-tolerant to trade in the stuff at any volume.
Also I have no love for big pharma (don't believe me, check out my profile) but what Merck did with Vioxx was 100% correct. It voluntarily recalled it ahead of the fda as soon as the risk became statistically significant in the trial set, which if you understand statistics, overestimates risk (because if you dont wait till the predetermined experimental end you selectively trap upwards random walks).
At the very least, it seems like to be a very big (and disruptive) change. Fingers crossed ... !!
It's fun to speculate though! My guess: Debt is extremely expensive and investments are more scarce (You have to at least beat the "returns" from deflation). Doesn't sound like a very business-friendly climate but it does reward those who hold on to their bitcoins.
This is some macroeconomic myth. Most economies ever have been mildly deflationary. It's inflationary economies that have been experiments (in the literal sense) as perpetuated by centralized authorities to silently confiscate wealth from the poor, sometimes for mendacious reasons, sometimes for 'virtuous' ounes... Most of these inflationary regimes have ended rather poorly.
For a more comprehensive perspective, check out "the great wave" by david hackett fisher (author of Paul Revere's ride), has an analytical span of a thousand years and geographically covers cultures all across Europe. An amazing tome, but surprisingly easy to read.
I'd always thought that the way to keep inflation low was to keep everyone poor, thereby increasing the relative value of work.
For non-econ-related issues, not so much. This quote from 1985:
"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." [0]
[0] http://www.businessinsider.com/paul-krugman-responds-to-inte...
If he'd said that in 1985, we might have forgiven slash continued to listen to the man.
[1] http://web.archive.org/web/19980610100009/www.redherring.com...
Somebody looked at that whole set of predictions: http://marginalrevolution.com/marginalrevolution/2010/12/pau...
It seems a reasonable record for a set of predictions that where "the point was to be fun and provocative", as the article you link explains.
If we were debating pure macro economics, even just pure economics, I might give Krugman's opinions a lot more weight but he's repeatedly proven to not only generate controversy for page views, but also to make off the cuff predictions about things he doesn't know about (while still throwing his full academic weight behind said predictions).
Take Denmark. Something like 55% of the population works for the government. Yet nobody would compare that country to, say, Russia. Or Egypt. Or Syria. The article is just pure ideology on its face. Which is to say, it's all about people wishing to fit reality into their own bias, not examine reality to form a testable hypotheses.
For its users, money has three classic functions: a medium of exchange, a unit of account, and a store of value. For its government producers, money has three other functions: a source of seignorage, a means of taxation, and a lever of macroeconomic influence. Theses various purposes can sometimes conflict, so tension arises when a monetary innovation appears that better serves some stakeholders than others.
Your statement that the article is about "people wishing to fit reality into their own bias" is quite ironic given the fact that your summary is not at all consistent with the actual premise of the article -- that Krugman's interests are not well served by Bitcoin, and that he's responding accordingly.
On the other hand in Switzerland only 9% work for the government. What language they speak? I am confused...
this was written in 2014 without a trace of irony.
Bitcoin could literally be a trillion dollar a year technology. Ten years from now there could be a trillion dollars a year of transactions flowing through servers running the exact same software that is running today.
This could be true AND it could simultaneously be true that all Bitcoins currently in existence are worth $0. Why? Someone could take the exact same technology, and start a competing "coin" -- the way dozens of people already have -- and if one of those manages to win, then the "original" Bitcoins are worthless.
The technology could succeed while the currency fails.
I suspect most of his critics are the sort of folks who think that they would be billionaires if only their taxes were low enough and governments weren't so restrictive about things like labor laws and environmental regulations.
He's only one among many such types penning editorials for NYT.
When he sticks to economics (his blog has a higher percentage of economic material compared to his column) he is definitely worth reading and shouldn't be dismissed with ad hominem attacks.
He doesn't always give the best advice...
Had there not been CDO's threatening to take down the world economy, the credit drying up in 2008 would have been far less severe.
That said, I believe he's describing, not advising