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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, th

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.

im3w1l 14y ago
On your point 2. Saving doesn't have to mean saving money. It can mean investing in stocks, bond, or funding start ups.
- air 14y ago
  Yes, but deflationary currency discourages that sort of saving, because holding on to the currency works as an investment.
  - Andrew_Quentin 14y ago
    Yes but, regardless of the nature of the currency, investing in stocks etc is an investment with a higher return than simply holding.
Retric 14y ago
"An economy is a closed system" that's not quite true. The economy is a balance between things that create value and those that destroy it. In a healthy economy more value is created than destroyed so as long as the 'savings' is close to the amount of new wealth created there is no problem. The problem is when people try to store more value than than the genuine amount of new wealth created. Often it's as simple as a bubble created by over-investment followed by a crash back to actual value. However, the special case of people 'investing' in cash cash does strange things which are directly harmful even without a crash.
- parasubvert 14y ago
  You're right. I was referring to exchange transactions, to simplify. Ie. you need a buyer and a seller (or an investor and an entrepreneur). It's not closed in the strict sense, because there is growth. Our current situation is similar to your final sentence - that of heavy liquidity preference - there are a lot of sellers and too few buyers, and investors who are mostly storing wealth in cash or liquid assets.
1337biz 14y ago
"right-wing/Austrian economists" Stopped reading right there. Seriously, if you want to frame Austrians as evil at least try a little harder to be subtle about it.
- parasubvert 14y ago
  Some would say "left-wing" is actually a euphemism for evil. What you read into "*-wing" is in the eye of the beholder. All I said was these views were non-mainstream, though there are interst groups working to change that such as the WSJ and certain entrepreneurs or business leaders and think tanks. Not that the views are evil. Please point me to some left wing Austrian-school economists to refute the association.
  - bob13579 14y ago
    What? The burden of proof is on you. What examples of non mainstream economics are you citing with the WSJ? Links to actual articles that prove your point, please.
    - parasubvert 14y ago
      I am not quite sure how one proves an observation on a board like Hacker News. All I can do is provide a few links as examples that clearly won't be enough to prove anything, just illustrate that I am not deliberately making things up. Also keep in mind that most WSJ articles are behind a paywall. To be clear, my view is: The WSJ editorial board (not their news dept, which is exemplary) has backed a number of somewhat dubious economic ideas for nearly a century, between their own editorials and op-ed contributors with ideas far from the mainstream whose ideas have lacked empirical support, but are popular among certain interest groups. This also goes for scientific ideas with political implications, such as global warming (which i'll not discuss here). I am not claiming that they're "wrong" in doing this - people clearly have a right to promote what they believe in - just that I think the many of the ideas themselves are wrong, and damaging to the economy overall but also the middle class. though that is a different and much longer conversation. Topics include: Support for "expansionary austerity" - ie. if governments spend less the economy will recover because of "confidence". Debt and Growth (2013) http://m.us.wsj.com/articles/a/SB10001424127887323528404578451110581429072?mg=reno64-wsj http://m.us.wsj.com/articles/a/SB100014241278873235284045784... The Real Stimulus Record (2012) http://m.us.wsj.com/articles/a/SB10000872396390444873204577537244225685010?mg=reno64-wsj http://m.us.wsj.com/articles/a/SB100008723963904448732045775... Rejecting Macroeconomic theory as not common sense enough (ie. doesn't fit with 19th century micro) Why Americans Hate Economics (2011) http://m.us.wsj.com/articles/a/SB10001424053111903596904576514552877388610?mg=reno64-wsj http://m.us.wsj.com/articles/a/SB100014240531119035969045765... Unemployment insurance benefits "causes" or "encourages" unemployment The Wages of Unemployment (2013) http://online.wsj.com/article/SB10001424127887324461604578193141690993174.html?mod=ITP_opinion_0 http://online.wsj.com/article/SB1000142412788732446160457819... Stimulating unemployment (2010) http://m.us.wsj.com/articles/a/SB10001424052748703720504575377381727739058?mg=reno64-wsj http://m.us.wsj.com/articles/a/SB100014240527487037205045753... Support for hard money (despite evidence that a gold standard was and would continue to be very deflationary and that current policies haven't been inflationary at all) Bernanke: Currency Manipulator http://online.wsj.com/article/SB10001424052970204530504578076953350391848.html http://online.wsj.com/article/SB1000142405297020453050457807... Capitalism Needs a Sound Money Foundation (2009) http://m.us.wsj.com/articles/a/SB123440593696275773?mg=reno64-wsj http://m.us.wsj.com/articles/a/SB123440593696275773?mg=reno6... Get ready for inflation and higher interest rates (2009) http://online.wsj.com/article/SB124458888993599879.html http://online.wsj.com/article/SB124458888993599879.html Counter-points: Laffer's anti stimulus curve ball is a foul http://business.time.com/2012/08/09/arthur-laffers-anti-stimulus-curve-ball-is-a-foul/ http://business.time.com/2012/08/09/arthur-laffers-anti-stim... 70% of economists believe that stimulus and monetary expansion (ie. fiat money) has helped the economic recovery http://m.us.wsj.com/articles/a/SB10001424052748703625304575115674057260664?mg=reno64-wsj http://m.us.wsj.com/articles/a/SB100014240527487036253045751... reduced participation in the labor force is due to boomer retirement, Not unemployment insurance http://www.offthechartsblog.org/why-is-labor-force-participation-shrinking-contd/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+OffTheChartsBlog+(Off+the+Charts+Blog+|+Center+on+Budget+and+Policy+Priorities)&utm_content=Google+Reader http://www.offthechartsblog.org/why-is-labor-force-participa... Unemployment insurance has small negative effect on return to employment http://papers.nber.org/papers/w17534 http://papers.nber.org/papers/w17534
bob13579 14y ago
You seriously have to be kidding about the non mainstream stuff. When have they advocated for a gold standard? Several prominent mainstream economists write for their op-eds, including Nobel laureates. I can't recall one Austrian.
thebmax 14y ago
I really don't get why people who call themselves 'mainstream' economists can't see or choose not to acknowledge the issues the Austrians bring up. It strikes me as quite odd. Not everything the Austrian school preaches is correct, but they do have some valid points that I would expect most smart people to understand. To bring up just a few big ones: Printing money and low interest rate policy of the Fed influences many things other than the simplistic lower interest rate=more spending=more growth formula commonly preached. 1) it hurts people with savings. A good example is all the retirees who have saved their whole life and now can't survive on the 1% returns their savings are generating. The Fed is supposedly helping people and business who want to borrow and can do so at low interest rates.. but that does not trickle back to pensioners who should be earning more on their capital if they were not competing with the Fed. 2) monetary expansion stimulates the economy unequally across industries and geographic regions. In the models of the academic economic departments, monetary expansion may apply equally to an economy as a whole.. In the real world short run it is a transfer of wealth from one group (wage earners, people who hold cash or low yield bonds) to another group (banks, government contractors, rich people with lots of land and stocks). Some people benefit from low interest rates and new money, but many people are hurt by those same policies. There are quite a few other issues that Austrians seems to be correct on, but these seem to be two of the most obvious to me.
- skylan_q 14y ago
  That all sounds very silly. There is nothing complex about interest or how controlling it can effect an economy. The interest rate is just a knob you can turn to adjust inflation and employment. It's science!
- parasubvert 14y ago
  I think you have a point on these two observations, though I would question (or flip) the specific groups helped/hindered by actvist government policy. The challenge is the broader policy implications of reversing course. For example, if the intent of the economy is to encourage activity and growth, then wealth transfer should be away from savers to spenders in a liquidity trap, for example (through increased inflationary expectations).
- 14y ago
skylan_q 14y ago
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. http://en.wikipedia.org/wiki/Long_Depression#Interpretations http://en.wikipedia.org/wiki/Long_Depression#Interpretations Consistently low unemployment, improving productivity, constantly increasing real value of wages, corporations struggling to earn a profit. A Currency that doesn't constantly lose value seems like a not-so-terrible proposition. God forbid, people end up having savings to live from.
Androsynth 14y ago
The difference between the US and Zimbabwe is that if the US had a civil war and inflation ruined the currency, it would send the world into the second dark ages. Civil wars cant happen in the US? thats good to know, but i wont take your (implied) word for it. What about if China suddenly asked for something in exchange for the tons of american paper currency they have accumulated? It is unlikely anytime soon, but they will only take it as long as it has value. So the more you inflate, the more you have to send to China to maintain the American lifestyle. Our economy is becoming less rugged over time. A large shock becomes more and more likely to significantly disrupt our system. There is no redundancy or backup operations. Our cpu core's are all at 120% load. <sarc>Also, its a good thing that stuff like population pressure and infectious diseases are a thing of the past (two of histories best methods for shocking a political/economic systems). You know, because the global population is under control and our climate is capable of withstanding everything we throw at it with complete aplomb. </sarc> However when everything is going well, Keynesianism works well. I will give it that.
- parasubvert 14y ago
  I did not imply civil wars can't happen in the USA. I said that its not happening right now. China does not own that much American debt, and has not been accumulating in the past few years. They have maybe 1.2 trillion out of the 15 trillion: http://en.m.wikipedia.org/wiki/National_debt_of_the_United_States http://en.m.wikipedia.org/wiki/National_debt_of_the_United_S... China moving away from US currency implies they don't want to trade with us - unlikely. But if they did do this, they'd sell the currency on the global market, the cost of the dollar would go down, and US exports would likely boom due to increased competitiveness. In other words, it remains in China's interests to keep their US reserves. And in everyone's interest -- as far as the numbers show, the safest asset on earth (as crazy as it sounds) is US government debt.
Andrew_Quentin 14y ago
"An economy is a closed system - if some are saving, others have to spend to keep the music going." You mean they have to spend more than they can afford? Otherwise, what exactly do you mean by they have to spend? Obviously they have to buy a house, a car, a phone, a computer, electricity, etc. I would think most people save what is left over if you like.

im3w1l 14y ago

On your point 2. Saving doesn't have to mean saving money. It can mean investing in stocks, bond, or funding start ups.

air 14y ago
Yes, but deflationary currency discourages that sort of saving, because holding on to the currency works as an investment.
- Andrew_Quentin 14y ago
  Yes but, regardless of the nature of the currency, investing in stocks etc is an investment with a higher return than simply holding.

Retric 14y ago

"An economy is a closed system" that's not quite true. The economy is a balance between things that create value and those that destroy it. In a healthy economy more value is created than destroyed so as long as the 'savings' is close to the amount of new wealth created there is no problem. The problem is when people try to store more value than than the genuine amount of new wealth created. Often it's as simple as a bubble created by over-investment followed by a crash back to actual value. However, the special case of people 'investing' in cash cash does strange things which are directly harmful even without a crash.

parasubvert 14y ago
You're right. I was referring to exchange transactions, to simplify. Ie. you need a buyer and a seller (or an investor and an entrepreneur). It's not closed in the strict sense, because there is growth. Our current situation is similar to your final sentence - that of heavy liquidity preference - there are a lot of sellers and too few buyers, and investors who are mostly storing wealth in cash or liquid assets.

1337biz 14y ago

"right-wing/Austrian economists" Stopped reading right there. Seriously, if you want to frame Austrians as evil at least try a little harder to be subtle about it.

parasubvert 14y ago
Some would say "left-wing" is actually a euphemism for evil. What you read into "*-wing" is in the eye of the beholder. All I said was these views were non-mainstream, though there are interst groups working to change that such as the WSJ and certain entrepreneurs or business leaders and think tanks. Not that the views are evil. Please point me to some left wing Austrian-school economists to refute the association.
- bob13579 14y ago
  What? The burden of proof is on you. What examples of non mainstream economics are you citing with the WSJ? Links to actual articles that prove your point, please.
  - parasubvert 14y ago
    I am not quite sure how one proves an observation on a board like Hacker News. All I can do is provide a few links as examples that clearly won't be enough to prove anything, just illustrate that I am not deliberately making things up. Also keep in mind that most WSJ articles are behind a paywall. To be clear, my view is: The WSJ editorial board (not their news dept, which is exemplary) has backed a number of somewhat dubious economic ideas for nearly a century, between their own editorials and op-ed contributors with ideas far from the mainstream whose ideas have lacked empirical support, but are popular among certain interest groups. This also goes for scientific ideas with political implications, such as global warming (which i'll not discuss here). I am not claiming that they're "wrong" in doing this - people clearly have a right to promote what they believe in - just that I think the many of the ideas themselves are wrong, and damaging to the economy overall but also the middle class. though that is a different and much longer conversation. Topics include: Support for "expansionary austerity" - ie. if governments spend less the economy will recover because of "confidence". Debt and Growth (2013) http://m.us.wsj.com/articles/a/SB10001424127887323528404578451110581429072?mg=reno64-wsj http://m.us.wsj.com/articles/a/SB100014241278873235284045784... The Real Stimulus Record (2012) http://m.us.wsj.com/articles/a/SB10000872396390444873204577537244225685010?mg=reno64-wsj http://m.us.wsj.com/articles/a/SB100008723963904448732045775... Rejecting Macroeconomic theory as not common sense enough (ie. doesn't fit with 19th century micro) Why Americans Hate Economics (2011) http://m.us.wsj.com/articles/a/SB10001424053111903596904576514552877388610?mg=reno64-wsj http://m.us.wsj.com/articles/a/SB100014240531119035969045765... Unemployment insurance benefits "causes" or "encourages" unemployment The Wages of Unemployment (2013) http://online.wsj.com/article/SB10001424127887324461604578193141690993174.html?mod=ITP_opinion_0 http://online.wsj.com/article/SB1000142412788732446160457819... Stimulating unemployment (2010) http://m.us.wsj.com/articles/a/SB10001424052748703720504575377381727739058?mg=reno64-wsj http://m.us.wsj.com/articles/a/SB100014240527487037205045753... Support for hard money (despite evidence that a gold standard was and would continue to be very deflationary and that current policies haven't been inflationary at all) Bernanke: Currency Manipulator http://online.wsj.com/article/SB10001424052970204530504578076953350391848.html http://online.wsj.com/article/SB1000142405297020453050457807... Capitalism Needs a Sound Money Foundation (2009) http://m.us.wsj.com/articles/a/SB123440593696275773?mg=reno64-wsj http://m.us.wsj.com/articles/a/SB123440593696275773?mg=reno6... Get ready for inflation and higher interest rates (2009) http://online.wsj.com/article/SB124458888993599879.html http://online.wsj.com/article/SB124458888993599879.html Counter-points: Laffer's anti stimulus curve ball is a foul http://business.time.com/2012/08/09/arthur-laffers-anti-stimulus-curve-ball-is-a-foul/ http://business.time.com/2012/08/09/arthur-laffers-anti-stim... 70% of economists believe that stimulus and monetary expansion (ie. fiat money) has helped the economic recovery http://m.us.wsj.com/articles/a/SB10001424052748703625304575115674057260664?mg=reno64-wsj http://m.us.wsj.com/articles/a/SB100014240527487036253045751... reduced participation in the labor force is due to boomer retirement, Not unemployment insurance http://www.offthechartsblog.org/why-is-labor-force-participation-shrinking-contd/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+OffTheChartsBlog+(Off+the+Charts+Blog+|+Center+on+Budget+and+Policy+Priorities)&utm_content=Google+Reader http://www.offthechartsblog.org/why-is-labor-force-participa... Unemployment insurance has small negative effect on return to employment http://papers.nber.org/papers/w17534 http://papers.nber.org/papers/w17534

bob13579 14y ago

You seriously have to be kidding about the non mainstream stuff. When have they advocated for a gold standard? Several prominent mainstream economists write for their op-eds, including Nobel laureates. I can't recall one Austrian.

thebmax 14y ago

I really don't get why people who call themselves 'mainstream' economists can't see or choose not to acknowledge the issues the Austrians bring up. It strikes me as quite odd. Not everything the Austrian school preaches is correct, but they do have some valid points that I would expect most smart people to understand. To bring up just a few big ones: Printing money and low interest rate policy of the Fed influences many things other than the simplistic lower interest rate=more spending=more growth formula commonly preached. 1) it hurts people with savings. A good example is all the retirees who have saved their whole life and now can't survive on the 1% returns their savings are generating. The Fed is supposedly helping people and business who want to borrow and can do so at low interest rates.. but that does not trickle back to pensioners who should be earning more on their capital if they were not competing with the Fed. 2) monetary expansion stimulates the economy unequally across industries and geographic regions. In the models of the academic economic departments, monetary expansion may apply equally to an economy as a whole.. In the real world short run it is a transfer of wealth from one group (wage earners, people who hold cash or low yield bonds) to another group (banks, government contractors, rich people with lots of land and stocks). Some people benefit from low interest rates and new money, but many people are hurt by those same policies. There are quite a few other issues that Austrians seems to be correct on, but these seem to be two of the most obvious to me.

skylan_q 14y ago
That all sounds very silly. There is nothing complex about interest or how controlling it can effect an economy. The interest rate is just a knob you can turn to adjust inflation and employment. It's science!
parasubvert 14y ago
I think you have a point on these two observations, though I would question (or flip) the specific groups helped/hindered by actvist government policy. The challenge is the broader policy implications of reversing course. For example, if the intent of the economy is to encourage activity and growth, then wealth transfer should be away from savers to spenders in a liquidity trap, for example (through increased inflationary expectations).
14y ago

skylan_q 14y ago

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. http://en.wikipedia.org/wiki/Long_Depression#Interpretations http://en.wikipedia.org/wiki/Long_Depression#Interpretations Consistently low unemployment, improving productivity, constantly increasing real value of wages, corporations struggling to earn a profit. A Currency that doesn't constantly lose value seems like a not-so-terrible proposition. God forbid, people end up having savings to live from.

Androsynth 14y ago

The difference between the US and Zimbabwe is that if the US had a civil war and inflation ruined the currency, it would send the world into the second dark ages. Civil wars cant happen in the US? thats good to know, but i wont take your (implied) word for it. What about if China suddenly asked for something in exchange for the tons of american paper currency they have accumulated? It is unlikely anytime soon, but they will only take it as long as it has value. So the more you inflate, the more you have to send to China to maintain the American lifestyle. Our economy is becoming less rugged over time. A large shock becomes more and more likely to significantly disrupt our system. There is no redundancy or backup operations. Our cpu core's are all at 120% load. <sarc>Also, its a good thing that stuff like population pressure and infectious diseases are a thing of the past (two of histories best methods for shocking a political/economic systems). You know, because the global population is under control and our climate is capable of withstanding everything we throw at it with complete aplomb. </sarc> However when everything is going well, Keynesianism works well. I will give it that.

parasubvert 14y ago
I did not imply civil wars can't happen in the USA. I said that its not happening right now. China does not own that much American debt, and has not been accumulating in the past few years. They have maybe 1.2 trillion out of the 15 trillion: http://en.m.wikipedia.org/wiki/National_debt_of_the_United_States http://en.m.wikipedia.org/wiki/National_debt_of_the_United_S... China moving away from US currency implies they don't want to trade with us - unlikely. But if they did do this, they'd sell the currency on the global market, the cost of the dollar would go down, and US exports would likely boom due to increased competitiveness. In other words, it remains in China's interests to keep their US reserves. And in everyone's interest -- as far as the numbers show, the safest asset on earth (as crazy as it sounds) is US government debt.

Andrew_Quentin 14y ago

"An economy is a closed system - if some are saving, others have to spend to keep the music going." You mean they have to spend more than they can afford? Otherwise, what exactly do you mean by they have to spend? Obviously they have to buy a house, a car, a phone, a computer, electricity, etc. I would think most people save what is left over if you like.