
Paul Krugman (1998): By 2005 Internet will have no more economic impact than fax - wslh
http://web.archive.org/web/19980610100009/www.redherring.com/mag/issue55/economics.html
======
martythemaniak
FYI: Digging up old, unrelated things Krugman has said that are wrong isn't
going to make your bitcoins worth more.

For those of you confused why this is a top item, Krugman wrote a bitcoin
piece today: [http://www.nytimes.com/2013/04/15/opinion/krugman-the-
antiso...](http://www.nytimes.com/2013/04/15/opinion/krugman-the-antisocial-
network.html)

~~~
guylhem
I'm sorry, but how constructive is your comment really? Do you think it's and
ad-hominem on Krugman? He's not popular with me, but even leaving that aside,
there's something more here.

Some say love and passion are two sides of the same coin, and the only
separate sentiment is indifference.

He sure seems to hate bitcoin with a passion now. Today's article is at least
not as bad as his last piece from only 3 days before,
krugman.blogs.nytimes.com/2013/04/12/adam-smith-hates-bitcoin/ that was
discussed here.

At least this time in the article he properly acknowledged bitcoin as the
"ultimate fiat currency", that's an evolution.

Yet he still sees nothing wrong with quantitative easing and the greenback,
and compare that situation to the goldbugs. Poeple who are too optimistic
about gold do not necessarily have to be right to make a good investment - if
the fiat currencies are doing down, that alone would make gold an interesting
investment (I for one would not place a single cent in a heavy precious metal
the US government has already confiscated in the past following executive
orders)

Just notice how sentimentally charged his article are - look at the keywords
in the titles, "hate" or "antisocial". It would be interesting to grab them
all and feed them into a sentiment analysis software, to see how he
positionned himself on other topics in the past, and if these position evolves
over time.

Still, it's weird and funny. Does he intend to write a bitcoin article a day
when the $300 cap is reached? He should post them on bitcoin related sites and
rename his blog.

~~~
martythemaniak
He is a prolific blogger (2-3 items per day, about 6-7 days a week) and he has
written about bitcoin a grand total of 3 times over the 3 years.

The feelings he seems to have for bitcoin are much worse than hate - it's
bemused indifference, which must be what drives bitbugs so mad.

~~~
_red
In all fairness, shouldn't Krugman be a "paperbug"?

~~~
podperson
It's not "goldbug" vs "paperbug" so much as "the value of ANY currency is an
illusion" versus "the value of gold is real, but that of paper is an
illusion".

(My favorite example of this is the post apocalyptic scenario -- I fill my
bunker with guns and food, you fill yours with krugerands: who wins?)

This is the problem with the bitcoin crowd -- they're trying to replace "gold"
with something "even better" not realizing that this is a blind alley.

------
gojomo
As much as I'd like to Krugman-bash, with respect to the implied context of
his prediction -- the Internet's effect on the macroeconomy, overall income
growth, and standard-of-living -- it wasn't that bad of a prediction.

The Internet has massively changed many industries and our ways of living and
communicating, especially those of us active on HN. But, the impact in the
macro statistics is still.. meh. See also Peter Thiel's laments and Tyler
Cowen on 'the great stagnation'.

Personally, I suspect there's been a lot of qualitative improvement that
doesn't show up in the time-series statistics. (For example, we're taking a
lot of the benefit of the Internet in economically-unmetered
leisure/shirking.) Also, I'd guess much of the benefit of new computer/telecom
efficiencies has just helped offset continuing losses to outdated and
parasitic arrangements by entrenched incumbents. (That is: the Internet's
boosts-to-growth have somewhat hidden the continuing losses-to-growth from
festering things like anti-competitive regulations, socially-broken education
and medical incentives, and income-sapping entitlement program
financing/payments.) Net-net, we're still on the same (or even a slowed) long-
term income trend, whereas if we fully addressed these older things, we'd be
seeing the full bonanza of Internet technology.

~~~
guylhem
I strongly disagree about a "qualitative improvement". facebook may be fun,
but not that fun if you can't put a dollar value on it or the surrounding
ecosystem.

The great stagnation is a real issue.

There is a visible disconnect in the growth rate of OECD countries. It's not
just reaching Solow long term equilibrium - it happened too fast. It's just
weird and troubling.

Hopefully the "rest of the world" will keep growing and improving the human
lot. Too bad for OECD countries.

------
cromwellian
Krugman isn't perfect, but he actually has been one of the more accurate
prognisticators ([http://www.poynter.org/latest-news/mediawire/130485/claim-
kr...](http://www.poynter.org/latest-news/mediawire/130485/claim-krugman-is-
top-prognosticator-cal-thomas-is-the-worst/))

More importantly, Krugman actually admits when he is wrong based on new data,
as he has done on several occasions in his blog and the NYT. To me, that is
the mark of a scientist, one who is able to be swayed by data.

Very few of the Austrians and Chicago types seem to admit to being wrong, and
often, contradictory data is simply waved away as conspiratorial (inflation,
econometrics). The whole notion of praxeology turns their conclusions into
untestable pseudo-science. It takes on the air of a religion rather than geeky
engineers willing to hold their ideas to fire of real world tests.

There are two issues at play here: the deep desire of technolibertarians for
"free money" and decentralization, and moral arguments surrounding the
function of the state and application of force, and the real world where their
predictions often fail. It's possible to love Bitcoin, but also admit Krugman
is right about it.

Bitcoin is a magnificent creation of cryptography. In fact, the entire field
of modern cryptography, from one way functions, zero knowledge proofs,
oblivious transfer, to high level schemes involving money, voting, homomorphic
encryption, et al, is staggering beautiful. When I first read of Broadcast
Encryption, despite its use in DRM, my mind was blown. I love all this stuff,
and have a deep affinity for subversive systems.

But Bitcoin isn't the anarchocapitalist utopia enabler that converts the world
into Galt's Gulch, because the deep beliefs about how a totally free economy
would work in practice don't have to be any more true than the beliefs about
how anarcho-syndicalist communities would work when scaled up. The real world
is complex, and a mixed set of strategies is more adaptive and stable than a
set of purist ones.

~~~
martythemaniak
You nailed it. My view is that bitcoin fans tend to be so enamoured with the
cool technology that they wholly ignore the economics and social aspects of
it.

From a mainstream view though, the technology is completely irrelevant - no
one cares if iPhone apps are written in Objective C or Lisp - what matters is
the end product and what people can do with it.

When someone like Krugman looks at bitcoin, they do not see any of the
technology (nor should they). They see a deflationary currency with vicious
boom-bust cycles. Knowing the miserable experience with such currencies in the
past, they don't think highly of this particular one.

~~~
cconroy
Does it not have business appeal in that it allows transacting parties to pay
direct -- without a middle man (banker) collecting fees?

Also it being deflationary (to me) is as much as a problem as USD being
inflationary. I don't spend all my USD as quickly as possible fearing next
week those things will be more expensive.

EDIT: Also rereading the post there is nothing substantial in his arguments to
support his conclusion -- mostly focusing on red herrings to discredit it: He
may not like it politically.

~~~
AaronFriel
I think part of the deflationary problem is that as bitcoins become more
valuable, the initial holders of bitcoins get an increasingly large share of
global wealth.

Suppose bitcoin continues on its current trajectory. The Winklevoss twins
allegedly invested $11 million into Bitcoins, and they allege they own 1% of
all the coins.

If they hold onto that asset and say, the entire rest of the world switches
over to bitcoin, various sources have suggested the total money supply is
between 50 and 75 trillion dollars. Assume that this amount converts to 21
million bitcoins - the 110-120 thousand coins they own will be worth a quarter
of a trillion dollars.

The Winklevoss twins will have made over a two million percent return, doing
nothing but joining a bandwagon with a decently sized investment.

This is, I think, one of the big problems with bitcoin. The incentive to "join
in" is going to be less and less and less because existing owners of bitcoins
will have an enormous amount of wealth.

That's not even the largest bitcoin account. There's one account listed[1]
with nearly 450,000 coins - imagine them controlling 2.1% of the global
monetary supply (over 1 trillion dollars) merely for being an early adopter.
Ugh. Disgusting.

[1] <http://bitcoinreport.appspot.com/>

------
guylhem
What is the point in beating a dead horse ?

Krugman is often wrong. He got a nobel prize, good for him, but we should not
take his opinions - or the opinion of any nobel prize or other authority
figures - as words from the gods.

Remember, past performance is not necessarily indicative of future results -
and this is as good as an example as it gets.

At least I reckon he made a testable prediction this time.

We are all human and faillible. What authority figures may provide is better
calibration - ie not being humble or arrogant, but say how good their
prediction is, and not be wrong too often
(<http://yudkowsky.net/rational/technical>).

At least, we should hold them to that standard since their past declarations
are available to the public and can be tested against current results.

~~~
kevinskii
He's gotten remarkably good at not making testable recommendations or
predictions. If an economy collapses, it's because the government didn't do
any stimulus spending. If the government tries to stimulate but its economy
still collapses, it's because it didn't stimulate enough. I don't think he's
ever gone on record to say specifically how much stimulus is needed. Someone
please correct me if I'm wrong.

~~~
mikeyouse
You're wrong.

[http://krugman.blogs.nytimes.com/2009/01/06/stimulus-
arithme...](http://krugman.blogs.nytimes.com/2009/01/06/stimulus-arithmetic-
wonkish-but-important/)

[http://krugman.blogs.nytimes.com/2009/10/05/the-story-of-
the...](http://krugman.blogs.nytimes.com/2009/10/05/the-story-of-the-
stimulus/)

[http://krugman.blogs.nytimes.com/2010/07/28/how-did-we-
know-...](http://krugman.blogs.nytimes.com/2010/07/28/how-did-we-know-the-
stimulus-was-too-small/)

<http://krugman.blogs.nytimes.com/2008/01/21/stimulus-issues/>

~~~
kevinskii
In most of these links he argues, true to form, that a certain stimulus
proposal wasn't big enough. But nowhere did he actually say how big he thought
it should be.

The closest he came was in your first link, in which he demonstrated how one
might theoretically calculate an adequate stimulus size. Yet this calculation
depends on first choosing a value for the Okun's Law coefficient, and nowhere
did he say what _he_ thinks it would be. He just picked an "optimistic" value
for the sake of demonstration. This single ambiguity easily gives him a few
hundred billion dollars in wiggle room.

~~~
mikeyouse
From the first article:

    
    
      Let’s be generous and assume that the overall multiplier on tax cuts is 1. Then the per-year effect of the plan on GDP is 150 x 1 + 240 x 1.5 = $510 billion. Since it takes $300 billion to reduce the unemployment rate by 1 percentage point, this is shaving 1.7 points off what unemployment would otherwise have been.
    
      Finally, compare this with the economic outlook. “Full employment” clearly means an unemployment rate near 5 — the CBO says 5.2 for the NAIRU, which seems high to me. Unemployment is currently about 7 percent, and heading much higher; Obama himself says that absent stimulus it could go into double digits. Suppose that we’re looking at an economy that, absent stimulus, would have an average unemployment rate of 9 percent over the next two years; this plan would cut that to 7.3 percent, which would be a help but could easily be spun by critics as a failure.
    

The math is obvious... if the economy was going to 9% unemployment without
stimulus (which we now know was too optimistic), with the same composition of
tax cuts : spending, $1T would be called for. Since we peaked at 10%
unemployment, even with ~1T in stimulus (which should've had a ~4% impact on
the rate), with this math, $2.25T could've been about right.

The CBO looked back at real output / unemployment and made the following
estimates.[1]

\-
[http://www.usnews.com/dbimages/master/29996/GR_120620_gdprec...](http://www.usnews.com/dbimages/master/29996/GR_120620_gdprecoveryact1.jpg)

Which shows the impact of the ARRA. So it seems that between 2-3% reduction in
peak unemployment with ~1T. So again, something like $2.5T would've been
close.

The point all along is that too little stimulus is far more damaging than too
much, and with unemployment still above 7.5% five years later, that point
seems to have some evidence.

[1]
[http://www.cbo.gov/sites/default/files/cbofiles/attachments/...](http://www.cbo.gov/sites/default/files/cbofiles/attachments/ARRA_One-
Col.pdf)

~~~
kevinskii
You're missing the point. Yes, the math is obvious. The correct coefficients
to use are not, and those are what make all the difference.

------
rayiner
While he missed this particular one, he's not wrong (and note that he's wrong
for social reasons more than technological ones). People generally
overestimate how quickly technology will change in the future. In 1998, I was
fretting over the 333 MHz processor that had just come out rendering my 300
MHz processor obsolete. Today, I'm happily using a 2010 MacBook Air with a
processor that was already almost three years old when the thing was brand
new. I don't think I saw that coming in 1998.

What people generally get wrong is the shape of technology curves, which are
generally S-shaped rather than exponential. Low-hanging fruit yields
exponential growth at first, then advancement becomes difficult and capital-
intensive. The amount of capital being spent to e.g. keep up with Moore's low
is breathtaking. So if a technology is advancing rapidly now, it probably
won't look all that different 30 years from now. It's the unexpected
technologies that you have to watch out for.

~~~
grannyg00se
"It's the unexpected technologies that you have to watch out for."

Some would argue that the unexpected technologies are what keep technology
curves exponential rather than S-shaped. (I'm thinking of Kurzweil here). Once
advancement starts to slow something else crops up and re-energizes progress,
keeping the exponential growth curve intact.

~~~
rayiner
It doesn't make a lot of sense to think of "the technological curve" as
opposed to various technological curves. If you look at things like power
technology, aerospace, medicine, etc, improvements have not been exponential
in the last 5-6 decades.

------
gregschlom
So he was wrong, no doubt about that. But I'd be interested in an analysis on
why he was wrong? What assumptions he made to reach his conclusion proved out
to be untrue?

~~~
podperson
His comment about WordPerfect 5.1 for DOS suggests he missed the significance
of the GUI too. I think he didn't realize the web and email would see truly
widespread adoption versus merely being another thing that made the tiny
minority of people who (really) used computers slightly happier.

------
ChuckMcM
I love this prognostication:

 _"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."_

It hinges on a such a fundamental misconception of humanity. It matters not
that people have nothing to say to each other, they will still talk at each
other! But more importantly humanity has an endless depth of vanity that can
only be treated but never filled by an endless depth of drivel. Never before
in our history have so many said so much to so many with so little content.

Ok, enough pith for now. :-)

------
crazy1van
All this talk of Krugman reminds me that there's an awful lot of scientism out
there today -- beliefs masquerading as science. The scientific method has been
thrown out the window in this regard. If someone is going to propose a theory
they claim is proven in someway, I want them to also identify the specific
event that if it occurs will disprove their theory.

The whole economics profession is filled with scientism, but my two pet peeve
issues on this are stimulus spending to fix the economy and man made global
warming. For them to be viable scientific theories, there must be an
observable event that if actually observed would disprove the theories.
Without that, they are just beliefs. Nothing against beliefs, but let's not
call them scientific theories.

~~~
parasubvert
This is wrong, though I empathize.

Social scientists come up with useful models that help explain events and
behaviours, that aren't disproven by empirical evidence. There are plenty of
ways to falsify a social science theory: wait long enough, or study enough
data, and you'll amass enough empirical evidence to determine whether your
theory holds up or not.

Of course, this does not mean it is proven - there may be a falsifiable data
point some day. But that's why we call it a theory.

Environmental science is somewhat harder because the timescales are much
longer than we have existed. But we also have well established ways of
estimating the climate of ancient eras. This is why global warming is
considered a scientific theory.

In economics, there is, for example, a lot of evidence these days in favor of
the standard Keynesian IS-LM model for a macroeconomy in liquidity trap
conditions, and a dearth of evidence supporting neoclassical models and Real
Business Cycle theory. This is almost a paradigm re-shift, in that a
previously abandoned paradigm (by many), thought by some to have been
falsified, is actually proving more predictive with respect to actual events
than previously recognized. Unfortunately economics is closely intertwined
with politics and ideology which doesn't mix well with science -- thus the
profession is in crisis.

An alternative, I suppose, is to go "full Austrian" and presume economics is
an inherently unfalsifiable subject, based on fundamental logical truths. Thus
it is justified to ignore all empirical evidence and mathematical analysis in
favor of deductive praxeology. This is what Von Mises and Rothbard (founder of
the US Libertarian party) believed, and they've been a common source of
contra-Krugman arguments.

~~~
lake99
I'm with you on global warming.

> An alternative, I suppose, is to go "full Austrian" and presume economics is
> an inherently unfalsifiable subject, based on fundamental logical truths.

This explains in what way: <http://mises.org/daily/2025>

> Thus it is justified to ignore all empirical evidence and mathematical
> analysis in favor of deductive praxeology.

Austrian economists don't ignore evidence. The evidence is interpreted
according to their ideological framework, just as any other kind of economist
does. It's 2002, house prices are rising rapidly. I have money to spare. What
do I do? None of the Austrian economists said "ignore the prices". Instead,
they used that data and said "bubble coming up".

~~~
parasubvert
> Austrian economists don't ignore evidence.

I meant in terms of revising their theory to improve its usefulness in the
face of new evidence.

------
nl
I think his predictions were consciously pessimistic, designed to underline
the title of the article _Why most economists' predictions are wrong._

I figure he scored 2/5 (The American triumphalism lasted until 2001, and the
raw-material crunch happened multiple times).

~~~
coldtea
Not to mention the pace of tech change (computing-wise) seems to slow down,
unless we can do something about Moore's law that doesn't involve 2000 cores,
battery life, and such.

~~~
nl
I don't understand your comment.

The pace of tech change doesn't seem to be slowing down to me.

The iPad was only released 3 years ago and yet now even government websites
are optimizing for tablets.

~~~
coldtea
> _The iPad was only released 3 years ago and yet now even government websites
> are optimizing for tablets._

So? The tablets are not a leap as not having computers -> having computers, or
mainframes -> personal computers, were.

It's a small incremental update.

~~~
nl
Everything seems like small incremental updates when you are too close to it.

If we expand it to "mobile" (ie, tablets & smartphones - and don't forget how
recent smartphone usage is) then it's pretty easy to argue that mobile is a
bigger leap than anything you listed given how it has made computing resources
usable by the vast majority of the worlds population.

~~~
coldtea
> _Everything seems like small incremental updates when you are too close to
> it._

Not really. The jump from "computers are for banks" to "everyone has one" and
from "no internet" to "full world wide web" seemed like full-blown updates to
me, and I was close to both. The same can be said the jump from EGA 1988 IBM
PC to 2000 full blown multimedia PC.

The jump from PC to tablet? Not so much. The jump from 2000 PC to 2013 PC? Not
so much either. Heck, a huge percentage of people still use XP, which was out
in 2001.

------
egsec
"Sometime in the next 20 years, maybe sooner, there will be another '70s-style
raw-material crunch: a disruption of oil supplies, a sharp run-up in
agricultural prices, or both. And suddenly people will remember that we are
still living in the material world and that natural resources matter. "

Very true, in consideration of the article on the Rent seeking economy
recently posted (<https://news.ycombinator.com/item?id=5548730>). Vanity, thy
name is apps.

------
snowwrestler
I tend give more weight to what people say when they are in their area of
personal expertise. Krugman on economics, I give a lot of credit. He's
demonstrably an expert on that topic. Krugman on the Internet or politics,
less so.

~~~
ashamedlion
What happens when the topic of discussion is the intersection between the
Internet and economics?

------
cpursley
Has anyone ever listened to Paul Krugman? Well, yes, unfortunately.

'Krugman's Call for a Housing Bubble" <http://mises.org/daily/6372/>

