Topic: Krugman makes some good points - page 4. (Read 7193 times)

Politcally and socially, sure.  Economicly or mathmaticly, not so much.


You're missing the point.  Credit availability is a problem for whom?  I'm not trying to be a jerk, I'm trying to be a better economics professor than you apparently have been exposed to thus far.  The classic method involves asking questions of the student, in order to lead them to a deeper understanding of the topic.  Economics is more than mathmatics or statistics, it's people, so both the who and why does matter.

Yes, you do.  To some limited degree and term, you must.  We all must, as there is simply no way to avoid it.  We can deliberately choose to limit that kind of exposure, but it's impossible to completely avoid it. And do you know who can least avoid it?  The poor.

This reminds me of a quote...

"The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”

-― Friedrich von Hayek

Just because that was the idea, son, don't mean that is what actually happens.  I question whether or not that was the true design, or simply propaganda to cover the scam, anyway.

Before Bitcoin, there was nothing truly detatched from fiat currency systems to invest into.  You betray your own though processes; as investing into regulated industries is investing into areas wherein the government has deliberately limited your choices, and then taxes you upon any successes that result despite them.  Even investing in gold is taxed here in the US; both up front (sales tax) and on the back end (capital gains tax).  The best way that I've found to invest without taxation is to use a Health Savings Account, but governments limit my choices there in other ways, and there is zero chance of fiscal privacy regarding one of those accounts.  There is also zero chance of investing in anything not dollar denominated.  It's acctually illegal to invest such funds into physical gold, for example.  An ETF, sure; but not actual coins.


You say that it's not a viable alternative to credit based fiat.  Okay, that's your opinion.  What is it good for then?  Again, why are you here?  Are you trying to convince us, or yourself?

Think, young man, think.

It might be, it might not. If it's a poor investment, you have people and resources being soaked up doing something when they might otherwise be more gainfully employed. It might have been better for people to hold on to their money until a better opportunity comes along. But if you do that in the current environment, you're losing value. So spend, spend spend and hope you don't get caught holding the bag (Hint: you will because when it all goes South, the government will take even more of your money to bail the big boys out).

I can't believe anyone can honestly look around at what we're in now and think the status quo is a good idea.

So predictable: the infamous libertarian rewriting of roman history. Here is some the other side of roman coin:
http://socialdemocracy21stcentury.blogspot.be/2011/06/debt-deflationary-crisis-in-late-roman.html


There is no arguing that: It just seems you want our society to use a tool that works for you; I will buy such tools myself and prefer society uses a tool that works for society.

Distribution of wealth actually matters very, very much.
But thats not the point Im making, as it isnt about wealth; its about availability of credit.  You (usually) dont get significantly more or less wealthy if you invest your credit money for instance in the stock market. But what you do achieve is making credit (ie money) available for businesses and generally thats a good thing for the economy. If everyone would hide their fiat under their pillow you would have a problem. Thats why I say the small disincentive inherent to inflationary  credit money is actually a  good property for the economy at large.


Sure; but you dont have to save in  fiat currency: buy gold; buy stock; buy bitcoins; buy land, start a business. Credit money isnt meant to be the best possible preservation of wealth and that its not  is therefore not in the least a problem. Its by design.  The most important goal of a monetary system is not to preserve my wealth,  it has to do enable our economy.  And thats what credit money is much better suited for than bitcoins.


Before bitcoin,  you truly found nothing to invest your money in?


You are completely misreading me. Im neither risk averse nor anti bitcoin; I just acknowledge what bitcoin is and what it isnt: A viable universal alternative to credit money; it is not: Something like ripple OTOH perhaps might be one day.

The only "example" I can find there is a reference to the Great Depression, which is only considered an example of a deflationary spiral because there exist no better examples.  The Great Depression was cause by a number of events in concert, most of which are actually bad political and international trade policies.  The example of the Panic of 1920, and the fact that it's nearly identical to the first two years of the Great Depression, is evidence enough that a deflationary spiral is, at most, a minor contributing factor to the depth of the Great Depression.  I say that it's a false theory.


Easy peasy, since I get to choose the time frames.  Any society that has ever existed upon a gold standard, prior to that same society's move towards currency debasement.  You're getting your cause and effect wrong, The Roman Empire didn't collapse because they used a deflationary currency (gold, silver, salt, nails) they debased that same deflationary currency because they were in the process of multi-generational collapse.  Money is simply a tool.

Yes, the point is kinda that they shouldn't.


Worse. Land could gain a lot of value in the short term. If you didn't want to sell it, you may suddenly have no choice as land is taxed on assessed value.

It's not better, nor worse, for society at large.  That's actually impossible.  The "market cap" of an economy is simply a reflection of the total wealth of that economy.  It doesn't matter so much who happens to possess that wealth, from an economic perspective.  Central bankers inflating a fiat currency is a hidden tax upon the entire currency userbase, as it transfers purchasing power from those who earn and save in a currency to those who create and have first access to that currency.  Said another way, every person who earns a paycheck is taxed in order to support the central banking system itself.  Since most central banks in our modern world are arms of governments, it's those governments that benefit from such inflationary policies at the expense of pretty much everyone else in the country.  However, governments are part of sociey, as it's usually defined, so such transfers are akin to removing water from one end of a pool and pouring into the other end.  Sure, you've moved some molecules around, but you have no hope of affecting the water level.

Furthermore, one would have to define "society" in the context of economics, otherwise you're just advocating a political perspective with broken math.


Not till now, but that's exactly why Bitcoin exists, to present a real alternative.


Where did you get that idea?  I'd just prefer that governments not make those choices for me, nor limit my choices.  They limit my choices all the time.


And it's your choice also, now that Bitcoin exists.  I suggest that you choose to invest elsewhere.  Bitcoin is, after all, a very risky investment for which you seem to have zero faith.  Why are you here?  Do you want us to convince you of your errors, or are you trying to convince us of ours?  In the case of the former, all the benefit is your own; in the case of the latter, your task is futile.

Krugman is a fool. Your university really uses textbooks from Krugman? Wow...

Actually my university text book defines deflation as a general decline in prices; as do most places  I can find online:     

In economics, deflation is a decrease in the general price level of goods and services.
http://en.wikipedia.org/wiki/Deflation

Definition of 'Deflation'
A general decline in prices, often caused by a reduction in the supply of money or credit
http://www.investopedia.com/terms/d/deflation.asp

"What Is Deflation?"
Answer: The standard deflation definition is when asset and consumer prices continue to fall.
http://useconomy.about.com/od/pricing/f/Deflation.htm

So yes; the bitcoin economy is very much deflationary right now and will likely remain so for the foreseeable future.  


reread the phrase; I said deflation will get worse. Im not sure who you want me to attribute that to.


I guess those are all made up then:
http://en.wikipedia.org/wiki/Deflationary_spiral#Historical_examples

That said, what counter examples would you give of prosperous societies with permanent deflation?

We can agree that both high rates of deflation and high rates of inflation increase the risk of long term contracts.  What is "bad" is a realtive perspective, in the context of economics.  Again, bad for whom?


Risk.  You're forgetting about risk.  That's why you shouldn't lend, if inflation is high.  It also matters why inflation is high.  High interest rates are often a reflection of a high systemic risk.  Often, not always.

I don't, and no economist worth listening to does either.  Inflation and deflation are best defined as the two most likely consequences of expansion and contraction of the monetary base, relative to the size of the economy that it represents, repectively.  Thus, Bitcoin is only deflationary in the contest that the rate of growth among the market exceeds the growth of the monetary base.


Again, worse for whom?  There are alwasy two parties to every trade, buck.

The voltility, relative to the exchange rate, will mute significantly as the economy grows.  The exchange rates of small nations' fiat currencies are (almost) always more volitile than the exchange rate between major nations such as teh US and the Euro.  And if the exchange rate of bitcoins continue to rise, it's a sign of economic growth; so if the volitility and deflationary nature does result in some breaking of that growth, so what?  That too will self-correct as the economy matures.  There is no such tihing as a deflationary spiral.  It's only an economic theory that has no real world examples.

For society at large.
And as the owner of the currency you are completely free to choose your method. BUt you seem to want the government to guarantee the return of your "investment" when you decide to keep it in fiat? Why? They arent promising you that, in fact they will pretty much guarantee you take a small haircut each and every year. Still, its your choice.

A government can create the legal basis to tax anything they like; including the gold in your safety deposit box or bitcoins.
So I guess your point is that investing in land is a poor way to evade taxes,  legally or illegally?
Sure,  bitcoin does look better in that regard.
Still I wouldnt worry an investment in land would lose 50% or 90% of its value in a short term.  Something I cant say of bitcoin or many other investments.

Better for whom?  It's not better for everyone.  The owner of the currency should be able to choose the best method of saving.  If your method really is better, others will follow.

Land is actually a pretty shitty investment as, like with so much else, the government feel free to help itself to your wealth if you own any (unless you are rich enough to be able to indulge in tax dodges).

That land prices have risen reasonably in recent history is just one of those things and the link between this and the paragraph above may not be entirely unrelated to the government created housing bubble.

So we agree deflation and hyperinflation are both bad
At least with hyperinflation you could compensate with higher interest rates. If interest rates are higher than the inflation rate, I dont see why I wouldnt lend.


Currently its actually incredibly deflationary if you define deflation as price deflation. If you are only referring to the increase of money supply, then it wont take nearly that long for the supply rate to be exceeded by the economic growth rate. If you only look at the bitcoin economy thats obviously already the case and thats only going to get worse if you have any confidence in bitcoins adoption.

Volatility is another problem which does hinder its adoption but it has nothing to do with inflation or deflation: If bitcoin reward halving protocol were devised differently so it would perpetually grow by 1 or 2% per year you would still have that. I do agree volatility is mostly because its so new and its unavoidable; but its not the fundamental problem I see with it.

Why? Why is it good to keep your savings in something which prime function is allowing commerce? Its better to have that money available for commerce than idling under your mattress.
Just put your savings in to something thats more suitable for it than credit money: Its not like you dont have a million things to choose from.

This is not a problem inherent to deflationary currencies.  It's also true within inflationary currency systems when the inflation rate is too high.  That's the real issue; not that Bitcoin is deflationary (it's not really, and won't be until at least 2100), the problem is that the rate of change of the exchange value is too high for such long term contracts to be sensible.  The current and past instablility is a consequence of Bitcoin's adoption rate, not any particular flaw in the system, and certainly not Bitcoin's "deflationary" nature.  It's simply not a mature economic system, yet.

I see that as a bad thing.

I wouldnt say consumption is incentivized; after all you can just as well invest your money if you dont want to spend it.
All that is desincentivized is hoarding of money; I see nothing wrong with that; quite on the contrary if you agree the prime purpose of money is making commerce easier.

If you look at it as an investment today, yeah maybe; though much, much higher risk and potential reward. Land is probably about as stable as an investment as you can get while bitcoin is on the other end of the scale.

But thats not my point. I dont have a problem with a risky or potentially lucrative investment; Im saying you cant use it as a universal currency to replace credit money.  No one is making that claim for land or gold either.
It just wont work if its value keeps going up. Among all other problems inherent to a deflationary currency,  no one will be able to afford a loan and no one will be willing to give one. 


YOu seem to look at money purely as an investment. To me its prime function is facilitating commerce and enabling economic prosperity.
Bitcoin might be suitable for the former; its far less so for the latter. 
Pretty much like gold and land.