Topic: Krugman makes some good points (Read 7193 times)

That quote is taken out of the context of an ongoing conversation.  The basic point is that, while economics can't practically be separated from the social aspect (a core premise of Praxeology, BTW), a great many modern 'economists' (Krugman being one example) will in one article discuss the mathmatics as if the social context of such events doesn't matter while in another article discuss their political ideology as the 'logical' outspring of rational economic thoughts & theories.  It does matter how wealth is distributed across society; to every ideology, but it doesn't matter to most Macroeconomic theories commonly preached by higher academia.  The mathmatics becomes an abstraction, and the social context is lost in the numbers.

You're referring to the oil boom.  Some of us tend to think that wasn't such an "economic" thing to do -- consuming the largest energy resource mankind has ever discovered within a few generations, exploding the human population, and ignoring any environmental effects it may have had.  Either way, I have a feeling the question will be answered definitively within most of our lifetimes.

I have seen a lot of behaviour amongst bitcoin users indicating that a deflationary currency incites at least a subset of people to try even harder to get more of it. Other people will become wealthy and then bored and look to invest in projects that they think are for the common good (people are not economic robots). Some will just hoard I suppose. The whole argument for inflation seems very suspect to me, which is what drew me to this project.

It is productive in that it keeps the economy solid and honest.

For example, it can be used to steer the interest rates. If the rate of interest rises high enough, the owner of the megastash can start lending them out to the market. This gives the new entrepreneurs more cheap loan-capital that would not be there otherwise. This facilitates growth of the real economy. Also the contrary is true - if the owner has already maxed out lending, and the rates keep on going down, he can smell rotten and decide to withdraw his lending from the market, and put it in a cold wallet instead. (The "rotten" he smells, might be for example fractional reserve lending that feeds the market with illusion that credit is available although in fact it isn't). This way he cools down the bubblish economy.

If you consider what is happening in the fiat world, we are in the very final stage of the credit bubble illusion. The interest rates are the lowest in world history, still nobody wants to borrow (I mean nobody with the actual ability to pay back the loan). Only governments and individuals who are broke, do borrow these days. Wealthy people and productive businesses either avoid borrowing like a plague, or are disqualified.

I own more income generating businesses, gold, silver, 500 euro notes, and bitcoins than most of you. I asked for a 7-year loan to buy a EUR 420k house, I would have put EUR 120k down and the rest in monthly installments that were within my family's monthly net income. The bank did not even bother answering me! Also my friends report about similar things.

So I smell rotten here. I won't keep my money in the bank earning exactly 0.0% interest if they are not doing what they should, loaning it out to the most creditworthy borrowers imaginable. If they keep on buying treasury bonds instead, it tells in plain letters about their appetite for ponzi and scorn for the productive economy.

Buying bitcoins now, for some it is a way to riches. For others, it is the ultimate manifestation of distrust in the banks.

Isn't this basically what life is?



Moon I'm having trouble understanding your two statements in relation to each other.  They seem to be contradictory.  In your eagerness to teach, you may have been a bit unclear.  The way I see it, economics is both social and mathematical science, and from that perspective, the distribution of wealth matters very much.  I agree with you that the who and the why does matter.



If you have so much money that you could indulge all of your present wants and needs and still have money left over, then effectively, wouldn't the remainder "just sit there forever?"  Is it really worth entertaining the notion that the money will enter the economy in 100 years so it's still productive?  What about 200 years? A billion years?  It sounds ludicrous but if you had a certain quantity of money that you didn't need to spend, and it continued to appreciate just by your holding onto it, then wouldn't you just hold it, and if so, how is that productive?


That's fine for you, and it proves the point that by holding onto your asset you're reaping the gains of others' labors.  People developing the land around yours is causing it to go up in value.  Your owning the land hasn't contributed much or anything, but it's increased in value.  Obviously everyone can't use the same strategy or no development would occur.


Basically.

The problem with Krugman's argument is that it assumes all alternative forms of money are equals(accept for one, Bitcoin, which is deflationary).In a sense they are because they all can be used as a form of payment but bitcoin is different because of its intrinsic features (irreversible payments, anonymity, infinite divisibility). Bitcoin will be used in ways other alternatives simply cant which will maintain its function as a medium of exchange.

Exactly!!!


I don't think this answers the question, rather shifts it. You didn't explain why the bank is giving out the loan instead if keeping it as bitcoins.

On one hand, you are saying that since Bitcoin is deflationary, people will not invest with it, which will result in economic collapse. On the other hand, you acknowledge that people, given the chance, will invest in other things than Bitcoin. Both of these can not be true.

It's also provablely false that Bitcoin isn't being used as a medium of exchange, so where does Krugman file that inconvient little fact?

"Constant deflation stops people from using it as a medium of exchange."

I don't think there is such a thing as constant deflation. Definitely not in regard to bitcoin.

It's Yusuf Islam to you, infidel!

Cat Stevens?

The dollar is, already, and established frame of reference.  It doesn't need to be backed now, because it once was backed by gold.  It's the Regression Theorem.  A p2p credit system needs a currency as a frame of reference because it doesn't have a history of use as a medium of exchange, and it's total base would be both largely unknowable and subject to extreme flexibility.  I've already given you the tools you need to understand, but you don't even know which end is the handle.  Bitcoin has both a history as a unit of exchange and it's base is both perfectly knowable at any given moment and it's future base is highly predictable; two attributes that are significantly better as a currency than both the US $ and gold.


I don't suffer fools easily, at least not for long.  You do know who you're talking too right?

So whats the dollar pegged to?   Exactly; nothing. It floats freely and you've not give me half an argument why a p2p credit money system could not float freely.

Anyway; dont bother replying if you cant  do it without ad hominems or ad ad pseudonyms.

I'l be damned! Krugman's sockie right under our nose... I love Internet

Ah, if we want to take it back to the original point, Bubblesort summarized as "Basically, he says that bitcoin is not really being used as a medium of exchange because it's deflationary."

Which is quite clearly nonsense. First of all, Bitcoin is currently inflationary in terms of the supply. Secondly, it may not be being used because the value is rising but this is due to speculation rather than any deflationary aspect to the supply. Now, you can argue that this rise in relative value is equivalent to or even actually deflation but that is still different than saying that it is not being used as a medium of exchange because it is deflationary. I believe it is hard to argue against the reason that it is not being used as a medium of exchange is that it is young and lacks critical mass and critical infrastructure.

Personally, I spent several BTC last week and am looking to spend a couple this week (plural of anectode is not data, of course).

Yes, there is a rational; and yes, you don't see it.  It's not even that you don't quite see it, you're not even within a line of sight yet.

A monetary base forms the frame of reference for value calculations.  In this sense, the monetary base must be knowable, and it also must be difficult (if not impossible) for the common user to create new currency.  For Ripple, a peg to the US $ would work fine, as it has for Paypal.  But without a currency base to use as a common frame of reference, Ripple users would be able to create debt based currency as easily as is done in a LETS and would remain as local for the same reasons.


Krugman hasn't been correct on any topic since he's been at the NYT's.  I'm somewhat certain that he lives in opposite world, and you might be his neighbor.

Wait a minute...

You own an old copy of an economics textbook, over fourty years old, Krugman fan...

Do you live in NYC?  Your choice of username makes mroe sense now.

Eventually I dont see why not. Our current fiat system doesnt have a monetary base either: Its debt money where the debt is expressed in that same currency and nothing else. Of course you will need a base initially, like we needed a gold standard to build trust and help assessing value. But it in the long run it serves no purpose; particularly not in a p2p system. Proponents of a return to the gold standard want it so governments have a limit on how much money they can print; but if everyone issues his own credit and is liable for that credit, whats the rational for a monetary base? Perhaps there is one; but I dont quite see it.

Anyway, this thread was about Krugman; my point is and always has been that krugman is correct in his criticism of bitcoin as an alternative to fiat credit money. I doubt he has heard of ripple though; would be interesting to hear his opinion on that.

This is true. Even if you don't want to go quite that far, once upon a time, most people would be content to live with their parents until they were married. And even then, many would continue to live until they could afford a house. Of course, housing now is much more expensive than housing was back then. Now, why was that, again?


And I respectfully disagree with your assessment that it is turning the clock back. Rather it is moving the clock forward, as it does from time to time, to individuals being more in control of their own destiny rather than it being decided by central powers.

To pop back to the business side of things, why can't people start a business from their savings? Oh, that's right, their savings have been stolen. lolgovt.

Ripple is p2p credit, yes.  Ripple is not a currency, however.  The distinction is not trivial.  Credit does not equal currency, and serves a different function.  Bitcoin can exist independently of Ripple, and Ripple can exist independently of Bitcoin; but Ripple cannot exist independently of an established common currency base.


I didn't say that you couldn't change your mind.  It does tell me more about you, however.

@Puppet you don't deserve your gov shill salary, you're doing an awful job.

Ripple "far more credible"? Bitcoin similar to fiat?

And the biggest... "we got rid of the gold standard without too much problem". Do yourself a favor and take some history lessons.

http://en.wikipedia.org/wiki/Gold_standard

http://www.econlib.org/library/Enc/GoldStandard.html

http://www.npr.org/blogs/money/2011/04/27/135604828/why-we-left-the-gold-standard