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I'll admit that the WSJ here is not as laughably bad as some quotations from their infamous op-eds had led me to believe. Maybe I was too harsh with them. They

I'll admit that the WSJ here is not as laughably bad as some quotations from their infamous op-eds had led me to believe. Maybe I was too harsh with them. They seem to do the balance thing, or more correctly here, the common sense and economics thing, at least passably well. Either way, there are some real pieces of work here, misconceptions about economics that were dispelled before, again and again. You're going to have a laugh, I promise. Of course, let's start about some inflammatory comments about Mr. Leftwing Strawman, as per usual: did you know that hyperinflation is inevitable because ZIMBABWE!? "I'll use a visual aid," says Mr. Andresen. "He opens his wallet and presents me with a gift: a 10-trillion-dollar bill once issued by the government of Zimbabwe." Deflation is good, because SAVING! (Here the Calvinist roots of old-school good Flemish capitalism start showing again, with careless disregard to any theory of supply-demand equilibrium. How do I miss Schumpeter/Marx...) "If prices are falling, he says, it does encourage people to save instead of spend, because the currency will be worth more later. It encourages people to lend instead of borrow. [and that's a good thing]" (Yeah, because as we know, in a given economy at a given time there can be more lending than borrowing. Or that saving > spending doesn't mean a contraction in the economy, by the magic of Austerian Economics. You people...) A classic: fiat currency is a FAITH! Heathens! "Federal Reserve Bank of Dallas President Richard Fisher calls the U.S. dollar a 'faith-based currency.'" (Not pictured: other things based in "faith", like civil oversight over the military, the Constitution, the enforcement of laws, the concept of credit itself, the currently overpriced exchange value of gold... basically anything that isn't enforced by AK-47's, except of course those enforced by the promise of AK-47's) "[...] what about a digital currency programmed to maintain stable prices, avoiding mischief by central bankers as well as the possibility of deflation? He says the engineer in him likes the simplicity of Bitcoin's fixed money supply." Yeah, great engineering dude, let's disregard things like, you know, minimal acceptable performance for simplicity ;) You know, Unix was simple, but at least it didn't crash every five minutes. And the Apple II was simple, and it even had color! Had many laughs. Would read again.

notahacker 13y ago
I liked the anecdote about the delays in wire transfers for renting a house overseas whereas with Bitcoin "the whole world is your market". I'm going go out on a limb and suggest there's a bigger proportion of the world willing to accept rental deposits in dollars than Bitcoins...
- pbreit 13y ago
  And PayPal is commonly, easily and effectively used in these instances.
Shinkei 13y ago
Rant much? I wanted to actually learn something from your post but it reads like a madman wrote it. I own exactly zero bitcoins, but following the market since 2011 has proven that it is getting easier to use and more prevalent. People will be putting down bitcoin as a serious entity even after PayPal is accepting them.
- parasubvert 13y ago
  Have you atudied economics? The OP reads like someone who has and is utterly incredulous at the statements being made by Bitcoin's proponents. In fairness, the gentleman interviewed in this article insisted it was all an experiment. But the WSJ editorial board has a long time habit of being very non-mainstream and almost Austrian with its economic views, so this interview was likely intended to play into a political narrative. Here is a summary of what he is trying to say: 1. Bringing up hyperinflation in Zimbabwe is a common tactic of right-wing/Austrian economists to warn of the evils of government control over fiscal spending and currency, and that our current course of monetary expansion means that we in the US too are on the same path. This ignores of course that (a) Zimbabwe had a civil war at the time and the government confiscated or destoyed most private productive capacity; (b) we are in a liquidity trap currently, which in short means that money is nearly free to borrow at 0% interest. Companies are sitting on piles of cash or continuing to unwind their debt from the 2008 crisis, therefore we have not enough people spending. Printing money has had no discernible impact on inflation over the past 5 years. In fact, we could use a bit right now - to encourage spending! 2. The thought that "encouraging saving is good" therefore fixed currency and deflation is good. An economy is a closed system - if some are saving, others have to spend to keep the music going. If we all stop spending, we get into a depression, where people lose their jobs, and the economy isn't working to its potential - all because the currency is rising in value. In short, it is arguable the point of an economic system is to make and consume goods and services, not sit and watch your bank balance grow due to the psychological whims of the market. 3. A currency based in faith is not a dangerous thing - basing currency on gold is mostly a form of superstition. and it has real drawbacks (see #2). Lots of things in the world are based on faith in institutions or theorems. Bitcoin is too - faith in the algorithm, that it works and won't be compromised. Also (blind) faith that a fixed amount of Bitcoin will not lead to destabilization. Now. Does that help? These arguments lead to exasperation because they seem to happen over and over across decades in slightly different forms.
dragonwriter 13y ago
> (Not pictured: other things based in "faith", like civil oversight over the military, the Constitution, the enforcement of laws, the concept of credit itself, the currently overpriced exchange value of gold... basically anything that isn't enforced by AK-47's, except of course those enforced by the promise of AK-47's) You know, you failed to specifically pick out the most relevant thing that is also based on faith: bitcoin. Like any currency, its value in exchange for anything else is dependent on faith that people will accept in the future.
scrollbar 13y ago
Regarding your point about the lending vs borrowing: The use of the word "encouraged" makes sense to me. If people are "encouraged" to lend vs borrow, that means they will have more desire to lend vs borrow. This has an important effect on the supply vs. demand equation. Supply of loans, ie. people willing to borrow, goes down and the demand, ie. people willing to pay money now for interest later, goes up, causing prices (interest rates) of loans to go up (down). In other words even though every dollar lent must be a dollar loaned, people's willingness to lend affects supply and demand.
- saalweachter 13y ago
  A deflationary currency doesn't encourage people to lend, it encourages them to save. If currency is deflating at a low, constant rate (say, 2-3%, comparable to the normal rate of inflation), then the interest rate -- in real terms -- must be strictly higher than this. A 0% loan with 2% deflation the equivalent of a 2% real interest rate. But no one will ever lend money in this situation. You take on risk, but have no reward. So the rate of deflation is the minimum real interest rate of any loan in a deflationary currency. In an inflationary currency, people will lend out money at even a negative real rate of interest and effectively lose money on an investment because the alternative is losing even more money by holding cash. If inflation is 2%, you will consider lending out money at 1% interest (if that is your only choice) because getting 99 cents back on your dollar by investing is better than getting 98 cents back on your dollar by holding cash. Hence, an inflationary currency encourages both lending and borrowing: lenders lose less real money than holding cash, borrowers pay back less real money than they borrow. A deflationary currency encourages neither: lenders would prefer to hold cash, because it's safer and has decent returns, and borrowers have even higher real interest rates.
  - scrollbar 13y ago
    Yep, thanks for the clarification, I don't disagree but just taking issue with parent's point that dollars lent = dollars loaned therefore it's impossible for policies to affect lending rate.
  - Andrew_Quentin 13y ago
nijk 13y ago
WSJ is a mediocre paper. WSJ OpEd is editorially a separate paper, and famously insane.
- thebmax 13y ago
  famously insane according to who? The founding mantra of the editorial board: "We are united by the mantra 'free markets and free people', the principles, if you will, marked in the watershed year of 1776 by Thomas Jefferson's Declaration of Independence and Adam Smith's Wealth of Nations. So over the past century and into the next, the Journal stands for free trade and sound money; against confiscatory taxation and the ukases of kings and other collectivists; and for individual autonomy against dictators, bullies and even the tempers of momentary majorities. If these principles sound unexceptionable in theory, applying them to current issues is often unfashionable and controversial." What is insane about advocating free markets and sound money?
  - _delirium 13y ago
    Despite their professed editorial line, in practice they're much more conservative than libertarian. For example, they are strong supporters of the War on Terror, both in terms of an interventionist foreign policy and ramping up domestic security measures. They also lean towards some support for Christian and social conservatism, though that part is weaker. On politics, they are pretty openly partisan in a pro-GOP direction. Take a look at the recent headlines of their Political Diary, for example: http://online.wsj.com/public/page/political-diary.html http://online.wsj.com/public/page/political-diary.html More problematically from my perspective, their opinion pages are notoriously loose with facts. It's one thing to argue a position, and another to just produce propaganda. For example, here is an exceedingly unsatisfactory treatment of what the Bible says about capitalism and prosperity (an interesting and somewhat complex issue, because the Bible has many things to say about it, which this piece ignores): http://online.wsj.com/article/SB10001424052970203806504577179303330474134.html http://online.wsj.com/article/SB1000142405297020380650457717...
    - Andrew_Quentin 13y ago

notahacker 13y ago

I liked the anecdote about the delays in wire transfers for renting a house overseas whereas with Bitcoin "the whole world is your market". I'm going go out on a limb and suggest there's a bigger proportion of the world willing to accept rental deposits in dollars than Bitcoins...

pbreit 13y ago
And PayPal is commonly, easily and effectively used in these instances.

Shinkei 13y ago

Rant much? I wanted to actually learn something from your post but it reads like a madman wrote it. I own exactly zero bitcoins, but following the market since 2011 has proven that it is getting easier to use and more prevalent. People will be putting down bitcoin as a serious entity even after PayPal is accepting them.

parasubvert 13y ago
Have you atudied economics? The OP reads like someone who has and is utterly incredulous at the statements being made by Bitcoin's proponents. In fairness, the gentleman interviewed in this article insisted it was all an experiment. But the WSJ editorial board has a long time habit of being very non-mainstream and almost Austrian with its economic views, so this interview was likely intended to play into a political narrative. Here is a summary of what he is trying to say: 1. Bringing up hyperinflation in Zimbabwe is a common tactic of right-wing/Austrian economists to warn of the evils of government control over fiscal spending and currency, and that our current course of monetary expansion means that we in the US too are on the same path. This ignores of course that (a) Zimbabwe had a civil war at the time and the government confiscated or destoyed most private productive capacity; (b) we are in a liquidity trap currently, which in short means that money is nearly free to borrow at 0% interest. Companies are sitting on piles of cash or continuing to unwind their debt from the 2008 crisis, therefore we have not enough people spending. Printing money has had no discernible impact on inflation over the past 5 years. In fact, we could use a bit right now - to encourage spending! 2. The thought that "encouraging saving is good" therefore fixed currency and deflation is good. An economy is a closed system - if some are saving, others have to spend to keep the music going. If we all stop spending, we get into a depression, where people lose their jobs, and the economy isn't working to its potential - all because the currency is rising in value. In short, it is arguable the point of an economic system is to make and consume goods and services, not sit and watch your bank balance grow due to the psychological whims of the market. 3. A currency based in faith is not a dangerous thing - basing currency on gold is mostly a form of superstition. and it has real drawbacks (see #2). Lots of things in the world are based on faith in institutions or theorems. Bitcoin is too - faith in the algorithm, that it works and won't be compromised. Also (blind) faith that a fixed amount of Bitcoin will not lead to destabilization. Now. Does that help? These arguments lead to exasperation because they seem to happen over and over across decades in slightly different forms.

dragonwriter 13y ago

> (Not pictured: other things based in "faith", like civil oversight over the military, the Constitution, the enforcement of laws, the concept of credit itself, the currently overpriced exchange value of gold... basically anything that isn't enforced by AK-47's, except of course those enforced by the promise of AK-47's) You know, you failed to specifically pick out the most relevant thing that is also based on faith: bitcoin. Like any currency, its value in exchange for anything else is dependent on faith that people will accept in the future.

scrollbar 13y ago

Regarding your point about the lending vs borrowing: The use of the word "encouraged" makes sense to me. If people are "encouraged" to lend vs borrow, that means they will have more desire to lend vs borrow. This has an important effect on the supply vs. demand equation. Supply of loans, ie. people willing to borrow, goes down and the demand, ie. people willing to pay money now for interest later, goes up, causing prices (interest rates) of loans to go up (down). In other words even though every dollar lent must be a dollar loaned, people's willingness to lend affects supply and demand.

saalweachter 13y ago
A deflationary currency doesn't encourage people to lend, it encourages them to save. If currency is deflating at a low, constant rate (say, 2-3%, comparable to the normal rate of inflation), then the interest rate -- in real terms -- must be strictly higher than this. A 0% loan with 2% deflation the equivalent of a 2% real interest rate. But no one will ever lend money in this situation. You take on risk, but have no reward. So the rate of deflation is the minimum real interest rate of any loan in a deflationary currency. In an inflationary currency, people will lend out money at even a negative real rate of interest and effectively lose money on an investment because the alternative is losing even more money by holding cash. If inflation is 2%, you will consider lending out money at 1% interest (if that is your only choice) because getting 99 cents back on your dollar by investing is better than getting 98 cents back on your dollar by holding cash. Hence, an inflationary currency encourages both lending and borrowing: lenders lose less real money than holding cash, borrowers pay back less real money than they borrow. A deflationary currency encourages neither: lenders would prefer to hold cash, because it's safer and has decent returns, and borrowers have even higher real interest rates.
- scrollbar 13y ago
  Yep, thanks for the clarification, I don't disagree but just taking issue with parent's point that dollars lent = dollars loaned therefore it's impossible for policies to affect lending rate.
- Andrew_Quentin 13y ago

nijk 13y ago

WSJ is a mediocre paper. WSJ OpEd is editorially a separate paper, and famously insane.

thebmax 13y ago
famously insane according to who? The founding mantra of the editorial board: "We are united by the mantra 'free markets and free people', the principles, if you will, marked in the watershed year of 1776 by Thomas Jefferson's Declaration of Independence and Adam Smith's Wealth of Nations. So over the past century and into the next, the Journal stands for free trade and sound money; against confiscatory taxation and the ukases of kings and other collectivists; and for individual autonomy against dictators, bullies and even the tempers of momentary majorities. If these principles sound unexceptionable in theory, applying them to current issues is often unfashionable and controversial." What is insane about advocating free markets and sound money?
- _delirium 13y ago
  Despite their professed editorial line, in practice they're much more conservative than libertarian. For example, they are strong supporters of the War on Terror, both in terms of an interventionist foreign policy and ramping up domestic security measures. They also lean towards some support for Christian and social conservatism, though that part is weaker. On politics, they are pretty openly partisan in a pro-GOP direction. Take a look at the recent headlines of their Political Diary, for example: http://online.wsj.com/public/page/political-diary.html http://online.wsj.com/public/page/political-diary.html More problematically from my perspective, their opinion pages are notoriously loose with facts. It's one thing to argue a position, and another to just produce propaganda. For example, here is an exceedingly unsatisfactory treatment of what the Bible says about capitalism and prosperity (an interesting and somewhat complex issue, because the Bible has many things to say about it, which this piece ignores): http://online.wsj.com/article/SB10001424052970203806504577179303330474134.html http://online.wsj.com/article/SB1000142405297020380650457717...
  - Andrew_Quentin 13y ago