Krugman on Bitcoin

Interesting take on the economics behind Bitcoin. At the heart is a quote from this article:

Underpinning the value of gold is that if all else fails you can use it to make pretty things. Underpinning the value of the dollar is a combination of (a) the fact that you can use them to pay your taxes to the U.S. government, and (b) that the Federal Reserve is a potential dollar sink and has promised to buy them back and extinguish them if their real value starts to sink at (much) more than 2%/year (yes, I know).

Placing a ceiling on the value of gold is mining technology, and the prospect that if its price gets out of whack for long on the upside a great deal more of it will be created. Placing a ceiling on the value of the dollar is the Federal Reserve’s role as actual dollar source, and its commitment not to allow deflation to happen.

Placing a ceiling on the value of bitcoins is computer technology and the form of the hash function… until the limit of 21 million bitcoins is reached. Placing a floor on the value of bitcoins is… what, exactly?

If you are at all interested in Bitcoin, start at the Krugman piece, then dig in to the linked pieces. Thoughtful reads all.

  • Shaun

    You say Krugman, but the byline says Brad DeLong.

    • Dave Mark

      Krugman wrote the post for the NYTimes. You get there by clicking the headline link. Krugman references an article by Brad Delong (which is where the quote comes from). The DeLong article is linked within my post and within Krugman’s post. There’s a third article to read, if you are interested. It’s by Charlie Stross and is also linked from Krugman’s post. Sorry for the confusion, Shaun. Hope this clarifies things.

    • brucej

      It’s Brad linking to Krugman. DeLong does a lot of outsourcing to him 🙂

  • brucej

    And it was about two minutes before the BC trolls started showing up in the comments, alternately telling Krugman he was a deluded academic or part of the conspiracy to quash troo liberty!!!11!!Eleventy!

    There was even one comment by someone proclaiming that didn’t he have a right to choose a deflationary currency as a Free person??

    All right that one may have been a Poe, but….

  • studuncan

    Krugman also said this: “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.”

    Nobody who has any reasonable intelligence would have said that in 1998.

    • Jeff_Lebowski

      Well, it didn’t take long for someone to parrot the quote that was tweeted by some crackpot libertarian last night.

      The moronic calculus here is: he was wrong about something in 1998, therefore everything he says is wrong. Brilliant. Are we in eight grade?

      Krugman has responded to the crackpots here:

      Come to think of it, libertarian crackpot is kind of redundant.

      • studuncan

        Go read my last sentence again.

        He wasn’t just ‘wrong’. He was truly, stupidly, aburdly so far off base as to ever be reliable.

        • So basically because he was wrong about the growth of the Internet he’s wrong about economics?

          That’s brilliant logic. I am very well versed in programming and was once wrong in what the name of the river flowing through St. Petersburg was.

          Does that mean I’m not allowed to talk about Perl and Python anymore?

          Seriously, get your head out of your rear end with the ad hominiem attacks…

          • studuncan

            No, it would be like you writing a story on the rivers in Russia, especially in St. Petersburg. And then asserting that the one in St. Petersburg was named the Amazon.

            It shows a level of ignorance that makes everything else you say worthless.

            That’s not an ad homenien attack, either.

          • Well if you’d said that he predicted the name would be Amazon then you’d be right.

            What you’re not getting is that he was making a prediction on how people would not change their need to share online. And that’s why you question his ability to predict this.

            That is ridiculous. And sorry but saying that he said it was the Amazon to me is an insult. You pretend he’s dumb, which he isn’t, based on one single prediction he made about something that’s basically non-financial.

            And if you’d read that friggin link that was provided to you by Jeff, you’d be feeling like a fool aready. Let me guess, you wouldn’t even be able to name the magazine that quote was taken from because you didn’t even read that link.

            The irony is that you are basically right: he made a prediction about something he doesn’t know jack about, namely the future of the Internet, as in technology. But this is about Bitcoin, as in financial, which he is a friggin expert in.

            God it really takes restraint not to curse.

          • studuncan

            “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”

            That isn’t a prediction, it’s an assertion. Note the verb ‘will’. And it was so different from everybody else’s predictions as to be made fun of back then. Because it was so obviously dumb and wrong.

            But, he somehow justified it so he’s good? You just keep believing him. I’ll mark everything he says with ‘probably a dumb ass comment.’.

          • You know the fun thing is I don’t always agree with Krugman (especially on austerity) but when I read comments like yours, attacking him for asserting something that’s outside his field of expertise, then I have to defend him.

            It’s one big ad-hominem attack and you don’t even get why.

          • studuncan

            Boo fucking hoo.

            He was ridiculously wrong, he’s a public figure, he gets criticized when he’s this wrong.

            And you obviously don’t know what an ad hominen attack is. Go look it up. I’ll give you an example. If I said Krugman slept around, and was wrong, THAT would be an ad hominen attack. Saying he’s wrong when he’s wrong isn’t ad hominen in the least.

          • You say he’s wrong about financial matters because he made a joking prediction on the internet in 1998 in a piece he HAD TO because that was part of the article, as if looking back in 2098.

            To me, that’s an insult.

            It’s as if I’d say you’re bad at your job because you were once wrong about predicting this week’s Lotto.

          • studuncan

            He wasn’t joking.

            And if I wasn’t joking about predicting the Lotto AND PUBLISHED IT IN AN ARTICLE AS IF IT WAS A FACT then sure I would have little credibility.

            Just like Krugman.

          • You’d have little credibility when it comes to your job because you predicted the Lotto?


            Ok forget it, Troll.

          • studuncan

            As if the future of the internet was as unpredictable as Lotto.

            Krugman was the professional troll. And you’re pimping him.

          • I don’t even know what “pimping” is supposed to mean in this context.

            I’ve been reading his opinions for as long as I’ve been watching “Real Time with Bill Maher”. Like I said before, I disagree with him on many things but you attacking him like this is Trolling, which is exemplified by your desperate need to have the last word.

          • studuncan

            Well, at least you finally looked up the definition of ad hominen attack.

          • Come on, prove me wrong. You need to reply to this. We both know it. You won’t be able to stop yourself. We both know you don’t have a valid point. All you have is the need to hit reply one more time.

  • Gretchen

    The problem with bitcoin as a currency is that it is underpinned by only those that actually use bitcoin. No national bank has even entertained the idea of bitcoin yet. A bitcoin is only of value to someone else that is willing to deal in bitcoin. It is not yet a currency and as such has no value outside its own group of users.

  • Steve

    How the hell can you say this. Krugman is absolutely full of shit, to bursting point. Recommending Krugman is the equivalent of saying “if you want to learn about the newest Apple devices listen to a Windows XP using luddite”.

    The guy is a self-proclaimed statist who stated that the internet was pointless and would be no more popular than fax machines; who has said that gold is worthless with its only use “making pretty things”; that Bitcoin’s great evil is that it takes power away from central banks, and makes it harder for us to be taxed and surveilled on by a government.

    If you are at all interested in Bitcoin, do not start at the Krugman piece, dear god. Do your own research. Go on wikipedia, spread your wings, understand the importance of the actual technology and protocol. If you believe a word Krugman says then you are being lied to.