
Krugman's Three Money Pits - tjaerv
http://bitcoinmagazine.com/9227/krugmans-three-money-pits/
======
isamuel
Krugman, a week ago:

> 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/](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.

~~~
oleganza
Very few people understand and are not afraid to say where the value comes
from. Bitcoin is a collectible. Network does not care how much 1 BTC is worth,
the price is determined simply by the amount of people willing to hold a coin
or two. Why they want to hold it? They believe there's enough or even
increasing amount of other folks sharing the same belief. And if it holds
true, then they get awesome payment network which gives them real purchasing
power: to spend their money as they please when they want. So the value is
essentially based on leap of faith or some sort of a bet. As time goes on and
more people get serious about their belief, the stronger the reliability of
BTC as a "store of wealth". Like with gold.

See also excellent article by Nick Szabo (who is a candidate for being
Satoshi):
[http://szabo.best.vwh.net/shell.html](http://szabo.best.vwh.net/shell.html)

~~~
ScottBurson
Value based on belief that the value will increase makes the currency
extremely volatile. (I am tempted to believe the characterization of Bitcoin
as "an infinite bubble generator".)

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.

~~~
oleganza
Volatility is a result of uncertainty. The more people share the same belief,
the more stable this belief will be. You see tons of people around you
confident in short-term safety of USD and you stay confident too instead of
selling every buck for gold, silver, gun powder and bitcoins. When Bitcoin
becomes world money, it will be so stable (and slowly appreciating) that
people can price goods in BTC directly.

------
mynameishere
Krugman criticizes bitcoin because it has no utility while consuming
resources. As a counter-argument, they bring up Krugman's habit of flying on
airplanes. Okay, so that argument proves one thing only: You have no real
counter-argument. Just admit it.

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.

~~~
RickHull
> _Krugman criticizes bitcoin because it has no utility while consuming
> resources._

Does he? Aren't you completely ignoring the utility of the payment network?

~~~
timr
What "payment network"? In its current state, Bitcoin is practically illiquid
-- almost nobody takes it for payment, and it's extremely difficult to
exchange for other currencies.

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.

------
leot
Look, Bitcoin is without a doubt super cool; but to claim that the
macroeconomics of it are known to be sound is utter folly. _No one knows_ what
would happen in an economy based increasingly around a deflationary currency,
and there are lots of hints suggesting the outcome could be pretty grim.

At the very least, it seems like to be a very big (and disruptive) change.
Fingers crossed ... !!

~~~
dnautics
_No one knows what would happen in an economy based increasingly around a
deflationary currency, and there are lots of hints suggesting the outcome
could be pretty grim._

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.

~~~
leot
"silently confiscate wealth from the poor" ... with inflation? That is
certainly counter-intuitive, to say the least.

I'd always thought that the way to keep inflation low was to keep everyone
poor, thereby increasing the relative value of work.

------
aagha
When it comes to econ-related issues, he's worth reading--at least it's
interesting.

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...](http://www.businessinsider.com/paul-krugman-responds-to-internet-
quote-2013-12)

~~~
wpietri
As the person who coded longbets.org, I find this line of argument irritating.
If the rule is "never trust anybody who made one prediction that, with
hindsight, turns out to be wrong" then you're basically saying, "only trust
people too wily to give hard predictions." It encourages the pundit's disease
of never saying anything substantive.

Somebody looked at that whole set of predictions:
[http://marginalrevolution.com/marginalrevolution/2010/12/pau...](http://marginalrevolution.com/marginalrevolution/2010/12/paul-
krugmans-predictions.html)

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.

~~~
pdeuchler
You're completely right, but if the question is phrased "should I trust this
person on a futuristic prediction concerning matters of complicated
technology" and the person has made some pretty silly errors in the past
concerning matters of complicated technology then the argument holds a lot
more weight.

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).

------
Tloewald
Appealing to "NSA-approved cryptography" in the concluding paragraph is more
than a trifle strange. One of the big problems with bitcoin, in my opinion, is
that for all we know it's a honey trap created by an intelligence
organization.

~~~
simplulo
Because the point of the article is not to convince bitcoin advocates but to
point out Krugman's intellectual contortions and dishonesty, when bitcoin
possesses features that should appeal to him. The NSA has to walk a tightrope,
because they want US government and other security-related communications to
remain secure. They cannot recommend flawed encryption to their own. I have
heard no mentions of SHA-256 being flawed, and the bitcoin software is open
source, an unlikely honey trap. Use your own judgment.

------
nickbauman
The article fails on the basic premise that government activity in the economy
is self-evidentially "bad" and non-government activity in the economy is self-
evidentially "good". Government activity versus private activity is no more or
less bad than the other.

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.

~~~
valar_m
Actually, if you read the article, the author conveniently lays out the
premise in the second paragraph:

 _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.

------
jhdkjqhkjqhwk
> NSA-approved cryptographic algorithms

this was written in 2014 without a trace of irony.

------
late2part
Krugman is a moron. Just ignore him, he'll go away soon.

~~~
ch00
I always see at least one ad hominem remark made in any thread that might
relate to Krugman. I'm actually curious, as someone who is not embedded in
finance or economics, what are people's detractions against this guy (who won
a Nobel prize)?

~~~
logicchains
"To fight this recession the Fed needs more than a snapback; it needs soaring
household spending to offset moribund business investment. And to do that, as
Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble
to replace the Nasdaq bubble." \- Paul Krugman, 2002

He doesn't always give the best advice...

~~~
gte910h
It did work, it killed the recession.

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

