
The Antisocial Network - nate_martin
http://www.nytimes.com/2013/04/15/opinion/krugman-the-antisocial-network.html?smid=tw-NytimesKrugman&seid=auto
======
shmageggy
> When you transfer bitcoins to someone else, it’s as if you handed over a
> paper bag filled with $100 bills in a dark alley.

This analogy is so wildy off the mark. In fact, an opposite scenario is more
apt; a transfer of bitcoins is like handing someone a bag filled with cash,
and then announcing it to everyone else in the world so that we can all agree
on who has possesion of what. Only now you have a robot or other faceless
surrogate perform the transaction for you, and (ideally) nobody knows which
surrogates, or addresses, map to which people. The fact that Krugman's analogy
botches the primary mechanism that makes crypto-currency work is
disappointing.

Edit: wording.

~~~
d0m
I really haven't had much time to learn on bitcoins, so sorry my dumb
question.. but when people are buying illegal drugs by using bitcoins, are
they really "Announcing it to everyone else?". I believe, maybe in theory,
that there's a clear trace of the transactions, but it gets way more easier to
hide both side, no? For instance, we know that XYZ shared 1k$ with ABC.. good
luck finding to find out who's that XYZ.

~~~
shmageggy
Yes, that's exactly it. The shared, public, distributed block chain records
every transaction that has ever taken place [1], so everyone knows and agrees
on the amounts that are associated with each address. As long as nobody knows
what addresses you use, it's anonymous with respect to a real-world identity.

[1] <https://en.bitcoin.it/wiki/Block_chain>

------
droopyEyelids
I've always heard Krugman referred to in reverential terms, so this really
leaves me scratching my head.

Setting aside the near ad-hom based on the fact that people use currency for
drugs, he seems to take the idea that bitcoin is anonymous for granted. That
means he doesn't understand what he's talking about, and there can't be two
ways about it.

Bitcoin can be considered pseudonymous, and in a system where exchanges need
to abide by money transmitter laws combined with the fact that every
transaction is a matter of public record, the situation is murky at best. And
when you actually think about it, if people must identify to exchange bitcoin
for other currencies, that might mean a sea change in the transparency of
financial transactions.

Krugman, if you read this, think of your goddamn reputation and do some
research! There are about a million exciting inferences to be made based on
the hard rules of the bitcoin protocol. Start here.
<http://bitcoin.org/bitcoin.pdf>

~~~
richcollins
I was listening to a talk show on public radio a few months ago. The man being
interviewed said it would be a great idea to build a defense against alien
attack as a way to stimulate the economy. I laughed aloud and wondered what
sort of crackpot they'd invited onto the show. When they returned from
commercial the host announced "we're back with Nobel Prize winner Paul
Krugman" ...

[http://www.huffingtonpost.com/2012/06/21/paul-krugman-
alien-...](http://www.huffingtonpost.com/2012/06/21/paul-krugman-alien-
invasion_n_1612973.html)

~~~
vinhboy
It's probably a tongue-in-cheek statement, but the idea behind it is pretty
sound. Besides, we are already doing that. For example, we have factories in
middle America building airplanes the army does not want or need simply
because the workers in those factories need the jobs.

~~~
richcollins
Yes wasting resources is an incredibly sound idea. Lets just increase taxes to
95% and spend it all digging ditches!

------
temphn
First, take a gander at M0, to get a sense of how much money has been printed:

<http://research.stlouisfed.org/fred2/series/BASE>

That shows you what _actually_ happened to the money supply. In other words,
the central factual claim made by Krugman is false:

    
    
      The practical misconception here — and it’s a big one — is 
      the notion that we live in an era of wildly irresponsible 
      money printing, with runaway inflation just around the 
      corner. It’s true that the Federal Reserve and other 
      central banks have greatly expanded their balance sheets — 
      but they’ve done that explicitly as a temporary measure in 
      response to economic crisis. I know, government officials 
      are not to be trusted and all that, but the truth is that 
      Ben Bernanke’s promises that his actions wouldn’t be 
      inflationary have been vindicated year after year, while 
      goldbugs’ dire warnings of inflation keep not coming true.
    

As that graph shows, we are indeed in an era of out of control money
printing[0]. Moreover, food[1] and energy[2] prices are through the roof, and
housing is being artificially propped up by QE4 -- in which dollar holders are
diluted to the tune of $85B per month[3] so that the government can take
mortgage-backed securities off the hands of their favorite banks. The CPI
intentionally excludes[4] the consequent energy and food price increases
(ostensibly due to their "volatility") thereby systematically understating the
consequences of printing 85 billion dollars per month, every month, to
infinity.

[0] <http://research.stlouisfed.org/fred2/series/BASE>

[1] <http://research.stlouisfed.org/fred2/graph/?g=8l2>

[2] <http://goo.gl/R4r0f>

[3]
[http://www.forbes.com/sites/afontevecchia/2012/12/12/qe4-is-...](http://www.forbes.com/sites/afontevecchia/2012/12/12/qe4-is-
here-bernanke-delivers-85b-a-month-until-unemployment-falls-below-6-5)

[4] <http://www.bls.gov/cpi/cpifaq.htm#Question_13>

~~~
mav3r1ck
Um, your link to gas prices show them going down. I don't consider that as
"energy prices going through the roof", quite the opposite actually. By the
way, a barrel of oil right now is in the same exact price range it was 5 years
ago (go to Marketwatch and click 5-year price).

Furthermore, one would be hard pressed to claim a rise in food-prices resulted
solely from inflation-- given the record droughts in America [1] and record
fires in Russia [2] that devastated entire crops last year.

Please, for the sake of good argument, try to be factually correct when trying
to claim others aren't.

[1] [http://theweek.com/article/index/230673/americas-worst-
droug...](http://theweek.com/article/index/230673/americas-worst-drought-in-
decades-by-the-numbers)

AND <http://en.wikipedia.org/wiki/2012_drought>

[2] <http://en.wikipedia.org/wiki/2010_Russian_wildfires>

~~~
temphn
Sure, let's talk facts.

1) Fixed the link to include the four year gas chart. Up from $2.03 to $3.57
in four years. Doesn't bode well for your case. Short link due to ampersands:

<http://goo.gl/R4r0f>

2) You seem to grant that inflation contributed to the rise in food prices. A
one off drought can't explain the persistence of the rise since 2008, or the
fact that food inflation caused the riots which led to the Arab Spring in
2011.

[http://www.telegraph.co.uk/finance/economics/8492078/How-
the...](http://www.telegraph.co.uk/finance/economics/8492078/How-the-Fed-
triggered-the-Arab-Spring-uprisings-in-two-easy-graphs.html)

    
    
      The first graph illustrates the correlation between the 
      prices of food and the Fed’s purchase of US Treasuries 
      (i.e. its quantitative easing programmes). (A widely-
      discussed graph illustrating correlation between QE and 
      broader commodities indices can be seen here.) We see how 
      the food price index broadly stabilised through late 2009 
      and early 2010, then rose again from mid-2010 as 
      quantitative easing was re-started (QE2) following Ben 
      Bernanke’s Jackson Hole speech of August 27 – with prices 
      rising of about 40% over an eight month period. Similar 
      correlations can be observed between Fed purchases and 
      wider commodities indices, but let’s focus on food for now.
    
      ... But the reality is that a rise in commodity prices is 
      precisely what theory predicts would be a consequence of 
      QE2, and the data give the same picture – we aren’t 
      investigating a contentious mystery in the data; we are 
      seeing precisely what we ought to have expected. 
    

Indeed. The amazing thing is how vehemently people insist that tripling the
monetary base in a few years won't cause inflation. This is a simple matter of
ratios. Bernanke, Obama, Bush, Greenspan, and Krugman have pursued a policy
that enriches banks and shields them from risk by diluting dollar holders. If
you understand the concept of dilution in a cap table, you should understand
this much: the printed dollars are deposited in the accounts of large banks,
enriching the very richest and making everyone else worse off.

Krugman himself is a knowing accomplice, one who always pulls his punches with
respect to the banks:

[http://krugman.blogs.nytimes.com/2010/04/12/failure-is-a-
fai...](http://krugman.blogs.nytimes.com/2010/04/12/failure-is-a-failed-
strategy/)

    
    
      One thing that keeps coming up in comments, both here and 
      on my column, is the widespread belief that all we need to 
      do on the banking front is (a) break up the big banks, so 
      that none of them are too big to fail (b) promise not to 
      bail out any banks in the future. That way, the claim goes, 
      bankers will know that they will face dire consequences if 
      they misbehave, and market discipline will do the rest.
    
      Dream on.
    
      ...
    
      But just letting banks fail isn’t going to happen — nor 
      should it. In practice, talking about doing so is just an 
      excuse to avoid real reform.
      

At the end of the day Krugman is for the bailouts, for the banks, and against
bank bankruptcy. No wonder he's against Bitcoin.

~~~
mav3r1ck
I think with both the gas prices and food charts (thank @cdtwigg for pointing
out longer-term historical food prices) I'm sorry to say but this is an
extreme abuse of statistics. If you extend the chart you linked to by exactly
one more year-"BOOM!" just as I said about a barrel of oil* being the same
price is was exactly 5 years ago. The huge drop in price resulted from a full-
blown recession that would have been worst if the Fed sat around and did
nothing.

*Price of a barrel of oil is a much more reliable measure because extreme environmental laws really get in the way of building refineries, which are also prone to being shut down, thus consumer gas prices are much more volatile than the price of crude. This reminds me that the price of oil is very strongly influenced by OPEC, so that is actually something I'd avoid looking at when measuring energy prices. Besides, oil is just one component of energy (although, probably the most important and largest one I'll say). Coal is still cheap as ever (discounting environment regulations) and natural gas prices has bottomed out due to fracking.

PS: Link is a little off still (missing ampersand between USA/Average)

~~~
temphn
Replaced with a short link. Thanks.

Regarding gas prices, Bush's wars drove up the price of oil. And then just
when our adventures in Iraq finally came to an end, the money printing began
in earnest. Obama hasn't helped by keeping Keystone XL in political limbo,
pushing offshore drilling outside the US, generally assaulting the energy
sector with regulation, and setting fire to several more countries in the
Middle East (Libya, Syria, Tunisia, Egypt, et alia).

If I interpret you correctly, you state that prices would have fallen if the
Fed had sat around and done nothing. I believe we may simply disagree on the
desirability of this: some may prize debtors, but I value savers. And I thus
generally think of falling prices for household goods (the dreaded deflation!)
as a good thing. However, the Fed looks at one of its primary duties as
propping up the prices of mortgages. The ostensible purpose is to protect
"underwater homeowners" who spent beyond their means. The actual purpose is to
take toxic waste off the balance sheets of banks and to put this hot potato in
the laps of dollar holders (not just taxpayers, but all dollar holders,
including the Chinese).

Anyway, we can talk all we want about these macroscopic phenomena, but
ultimately what it boils down to is that people want the Fed to "help the
poor" and not simply stand there. And the optics look like they are helping
the poor by diluting the dollar and thereby inflating away debts (i.e. the
inflation which "doesn't exist" will soon be called a feature and indeed set
as a goal by the likes of Krugman).

However, the Fed is also inflating away earning power, and the banks are the
first recipients of these inflated dollars, thereby profiting the most from
said inflation. The result is a policy that actually hurts the poor far more
than simple inaction and rewards the very richest - not entrepreneurs or
technologists but the banks that receive direct deposits from the Fed for its
"purchases" of mortgage-backed securities (meaning $1 purchases of things
worth $.01, or $0).

Bitcoin is a strike against the Fed and the banks by the Valley, perhaps a
critical blow. It is very surprising to me that pg (or anyone) could think
that USG could possibly have released something like Bitcoin, as it strikes at
the very core of the US government's power: the ability to print money.

~~~
mav3r1ck
I agree with you in that I value savings more than debt (hate the current
savings rates) and that the Fed does nothing to help the poor (but that's not
their job or incentive to do so and I never thought of it that way ever). The
Fed had to do what it did because the banks would have failed otherwise. And
if the literally too big-to-fail (and prosecute and everything else) banks
failed, then the recession would have been far worst than the Great
Depression.

However, a lot of people who still held on to their mortgages do depend on the
value of homeprices to stay up, (and the value of a college degree while we're
at it since student loans recently overtook creditcard debt).

We're getting way off topic here though. I'll just close out with I think the
best solutions are to: 1) Bring back the Glass-Steagall Act and don't allow
Investment banks to gamble with consumer money 2) Once (1) is actually in
place, then the next time a banking crisis comes around, let all the
Investment banks fail and only prop up the ones that actually provide
deposits, loans and savings. That will right a terrible wrong done 5 years
ago. 3) I came up with this recently after reading Liar's Poker and a followup
interview a few years ago of Micheal Lewis and John Merriwether: make all
banks private (non-public) corporations again. The only bank that is not fully
public is Goldman Sachs (yes, they went public in the 90s, but there are still
partners who essentially control it) and is probably part of the reason they
do better than everyone else.

------
mav3r1ck
I think Krugman hit the nail on the head with some comparisons here, such as
of being a bit-bug is no different than being a gold-bug and how money cannot
stand outside the system. That's exactly what the value of money is-- it's
other people's belief in whether other people believe in it, which actually is
pretty much how social networks work.

The thing I never liked about bitcoin was the whole let's prevent inflation by
not allowing the 'printing' of money bit that are baked into how the bitcoin
supply expands. I don't see any reason to expound on that other than to make a
political, rather strongly libertarian-leaning, statement.

------
jonny_eh
He totally skipped over the best argument for Bitcoin, the reliance on middle-
men when exchanging money online. You either have Paypal or some other kind of
credit card processor that takes %3 or more of every transaction.

If only the value of BTC would settle down a bit, it would make a great way to
facilitate micro-transactions.

~~~
lbarrow
Why do you need an alternate currency to do that? Companies like Dwolla are
hard at work trying to make credit card processing payment fees a thing of the
past. Last time I checked, it cost only 25c to move money between bank
accounts on Dwolla.

~~~
damian2000
Are they international? If so you can bet someone (such as a bank) is taking a
cut somewhere on the offered exchange rate.

EDIT: I just looked and Dwolla is US only.

~~~
consz
I mean, there's a % taken from every bitcoin transaction as well, it's just a
question of which fee is lower, BTC or dwolla.

~~~
damian2000
I think the bitcoin fee is optional? or at least doesn't apply in many cases?

~~~
accountoftheday
peers may offer to process bitcoin transactions for free, and the original
paper posits there are always going to be participants who will.

------
jayfuerstenberg
I don't know if I agree with everything Krugman says here but the more I think
about bitcoins and real money the more I realize how much better life would be
if the world of abundance would finally get here.

The idea of treating electricity and clean water (among a whole host of other
resources) as abundant as the air we breathe is one worth pursuing.

~~~
richardjordan
Would finally get here? What gives you the confidence this will happen in a
world of finite resources and where Physics & Chemistry contain rules that
don't break (like the challenges of obtaining sufficient energy supplies at an
sufficiently high Energy-Return-On-Energy-Invested basis), and where we have a
huge population that's still growing, and an environment which appears to be
straining under these pressures?

Sure, resources being as abundant as the air we breathe is an idea worth
pursuing. Unfortunately it smacks into reality where resources are limited,
are being converted into unusable forms at increasing rates and many if not
most of the critical ones are peaking or have peaked in terms of production
rates.

Still... I long for Iain M. Banks Culture too... sadly I just don't think it's
going to happen.

~~~
jayfuerstenberg
Well somethings will always be scarce, like real estate. But other things can
be made abundant.

The internet and sites like Khan Academy are the first great steps in making
education abundant for instance.

Electricity is another resource that within the next decade anybody can have
in abundance. Well, anybody with a roof onto which a solar panel can be placed
that is.

Little by little it is happening.

~~~
richardjordan
So one of the problems that advocates for solar panel driven futures have is
that they don't add in the significant cost in terms of energy and resources
of producing them, nor the fact that a lot of solar solutions start with
petrochemical inputs. Once we lose the 100:1 EROEI that we get from drilled
oil a lot of other assumed energy solutions become very challenging. A lot of
these things are energy intenstve to produce in the first place and have
finite lifetimes.

------
tantalor
Not sure I buy the most persuasive argument,

 _bitcoins are the ultimate fiat currency, with a value conjured out of thin
air, paper currencies have value because they’re backed by the power of the
state_

Dollars and yuan are fiat currency. What difference does it make that bitcoin
holders aren't back by a state? Is anything going to change if countries
convert their reserves to bitcoin? How many bitcoins does the US own?

This seems like an argument that will evaporate given enough time.

~~~
yungchin
I believe the thinking behind this is that if a nation state designates a
currency as their official currency, that will guarantee a baseline demand for
the currency: citizens will need to either hold or obtain the currency to pay
their taxes. With Bitcoin, no such baseline demand is guaranteed: if the
"faith" in Bitcoin drops in the network, and people stop accepting it as
payment, there's no stopping the decline in value.

I'm still not sure whether to buy this argument, given that history has more
than a few examples of state currencies crashing like there was no bottom,
too.

~~~
dragonwriter
> I'm still not sure whether to buy this argument, given that history has more
> than a few examples of state currencies crashing like there was no bottom,
> too.

State currencies usually crash when the State isn't doing to well, (not
infrequently as a result of losing a major war.)

Which is actually consistent with Krugman's point.

Ultimately, value of any good used as currency (and, really, pretty much any
good at all) comes from two sources: (1) what is it good for _without_ trading
it (use-value), and (2) what do I expect I will be able to trade it to others
for in the future (trade value). Pure currencies, like common fiat currencies
and bitcoin, tend to have no (or virtually no) use value -- sure, you can use
pennies to weight something down, or burn banknotes for heat, but that's most
irrelevant. Their value is all trade value. Having a government that you
expect to have to deal with that expects payment in dollars (or pounds, or
what-have-you) for fines, fees, taxes, etc., and which denominates damage
awards in civil cases in the same currency, and makes tendering that currency
a legal attempt to pay a debt which is given weight in court (what "legal
tender" means), provides a baseline demand. Of course, when that State becomes
weaker, the support its backing gives currency becomes weaker.

------
jdrobins2000
Krugman: "I guess you could make that case if the money we actually have were
misbehaving. But it isn’t."

Translation: "Our fiat currency hasn't failed this time... yet. Ipso facto, it
will never fail. Anyway, it's not worthwhile to try to forsee future problems
until they actually happen."

I'm not a fan of CNBC, but every once in a while they say something decent.
<http://www.cnbc.com/id/48349503> “'Every single fiat currency in history has
collapsed, this time will be no different.'”

I'm not predicting the demise of any major currency. However, I can't say I
don't have my concerns about current practices, and history does not bode
well.

------
richardjordan
I see BitCoin as an opening gambit not an end position. It's likely that
BitCoin will bubble, froth, and ultimately collapse, but that it will be
replaced by something of similar form with certain structural improvements.

I read (wish I could link to give credit to the commenter) a nice analogy
today - of BitCoin being the Napster of the space, innovator but not the
ultimate winner.

Krugman's point as to its necessity is valid, however I still see it as likely
that we'll end up with a currency of consensus, which has exchange value
because a critical mass of people believe in its value and are prepared to act
on that for a sustained period of time.

~~~
damian2000
It could be that a large retailer with an existing user base could launch
their own currency, much as Amazon has done in a limited fashion with Amazon
Coins.
[http://www.slate.com/articles/technology/technology/2013/02/...](http://www.slate.com/articles/technology/technology/2013/02/amazon_coins_jeff_bezos_brilliant_plan_to_give_free_money_to_kindle_fire.html)

~~~
XorNot
This would just be funbucks though, no different to Disney. What it would not
be would be a separate currency, since that's illegal and for good reason: it
would be a return to the days of being paid in company scrip, which can only
be spent at the company store.

EDIT: Not to mention that apparently we can't trust the government, but we can
definitely trust a giant profit-motivated non-democratic entity to manage our
currency?

------
kaoD
I stopped reading after the "untraceable" claim and the "dark alley" simile.
What a showstopper.

No wonder he doesn't get Bitcoin at all.

~~~
jayfuerstenberg
Type "Paul Krugman is" into Google and you'll see the how people feel about
him.

~~~
shmageggy
For me, it autocompletes with "wrong", "right", "always right", and a bunch of
ad hominems (not necessarily in that order), so I'm going to say...
conflicted.

------
damian2000
Surely Bitcoin and its users _are_ social - as can be attested by its viral
growth in the last couple of years.

------
bsimpson
The first dot-com crash and the housing crash were both painfully obvious, but
things went on swimmingly in spite of the obvious foolishness of it all long
enough for people to forget their skepticism and buy in. Then, there weren't
anymore people to buy in and both markets crashed.

It's going to happen with the dollar too. Everything is going to keep going
fairly OK, even though we all know it shouldn't, until the day it doesn't.

Just because it hasn't crashed yet doesn't mean it isn't capable of or likely
to do so.

------
tantalor
Am I the only one amused by the Winklevoss twins declaration of "faith in a
mathematical framework that is free of politics and human error"?

1\. You don't need faith in math. That's the point.

2\. Just because it's based on math doesn't mean it can't all come crashing
down.

3\. If you think you can invest money in math, please contact me privately
about some exciting differential equations you may be interested in.

------
venomsnake
I usually like Krugman, but this column is botched. Krugman does not get
bitcoin protocol but is a bit better with Bitcoin.

Just reading about "complicated math problems" make my brain hurt. There is
nothing complicating in a hash function except designing it properly.

While there are valid attacks on bitcoin he is not making them.

~~~
nate_martin
Agreed, I think he fails to see past the idea that bitcoin has its own "gold
standard" built in. The idea of a non-inflationary currency to PK is just
silly. Perhaps he will change his mind once further adoption has taken place
or when a new use surfaces.

------
jdrobins2000
Krugman: "bitcoins are in a sense the ultimate fiat currency, with a value
conjured out of thin air"

I recently did a little reading into the mechanisms behind bitcoin, and am
intrigued. I was skeptical but certainly understand the merit now, though I
don't understand enough details (especially the transaction-fee-only endgame)
to rule out vulnerabilities. However, it does seem clear that the miners
actually perform a valuable service of ensuring the integrity of the bitcoin
system. So, for Krugman to say that the bitcoins are created out of thin air
is disingenuous, if not surprising.

------
vinhboy
Krugman really dropped the ball on this one. He really needs to sit down with
a technologist and have them explain to him how bitcoin works before he writes
anymore critiques of Bitcoin.

However, looking pass his technological misunderstanding, he does raise some
good points about why bitcoin can not be the idealistic currency people want
it to be.

