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Ignore the flamebait headline. The distinction Krugman makes between positive and normative economics is a useful one. On the positive side, I think Krugman an

by natrius 13y ago

Ignore the flamebait headline. The distinction Krugman makes between positive and normative economics is a useful one. On the positive side, I think Krugman and DeLong are overestimating the strength of the floor for the value of a dollar. Hyperinflation would make it impossible for the Federal Reserve to buy up enough dollars to stabilize the value of the currency. Sure, you can pay taxes with them, but the government collects taxes to buy things, and if people no longer have faith in the dollar, the government won't be able to buy things with those tax dollars. There's no floor on the value of Bitcoin, but there's no floor on the value of the dollar either. On the normative side, I don't think one's position on the utility of central banking matters when it comes to Bitcoin. If blockchain currencies are the future, central banking is over, and our society will have to figure out how to make the economy work with endemic deflation. I think central banking is useful, but I don't see a future for it.

mapgrep 13y ago
>Hyperinflation would make it impossible for the Federal Reserve to buy up enough dollars to stabilize the value of the currency Even if this is true, where is the evidence that we're in imminent danger of hyperinflation? Despite mounting public debt, U.S. inflation has remained incredibly low since the start of the financial crisis four years ago, as has the interest rate that must be paid by the government to issue new debt. From what I can tell, we have on the one side a dollar that has endured as a value store and medium of exchange for hundreds of years, and which has proven remarkably resilient (valuable) by any objective measure throughout the worst economic implosion since the Great Depression (which the dollar also survived). On the other hand we have Bitcoin which is intriguing in many ways but which has demonstrable volatility even just in the short span of its existence. And which, as a feature, is not backed (in the hard economic sense) by any nation or bank. I mean it's cool and all but I see where Krugman is coming from.
- natrius 13y ago
  We weren't in imminent danger of hyperinflation. I think mass adoption of Bitcoin will cause hyperinflation. If every merchant you patronize today accepted Bitcoin, would you rather have Bitcoin in your bank account or dollars? I'd rather have Bitcoin. They're easier to transfer, they can't be counterfeited, and their supply can't be manipulated. If every merchant accepts Bitcoin and every consumer agrees with my logic, hyperinflation of the dollar would occur. Coinbase and its 0% transaction fees will lead to rapid adoption of Bitcoin on the merchant side. I'm less confident about the consumer side, but I see that happening as well.
  - mapgrep 13y ago
    Bitcoin went up more than tenfold in less than six months. Then if fell by more than half in less than one month. So I strongly disagree that most people would want to use that for their checking account, paycheck, etc. I am also baffled by "they're easier to transfer" than dollars. Yes you can email BTC. But I can literally hand you dollars. No smartphone needed! And large amounts are trivially easier - I squiggle some lines on a piece of paper and hand it to you. Or if you want to stick to smartphones I can pull one out and send you dollars using one of dozens of e-payment platforms. Interesting thesis though.
    - natrius 13y ago
      You can hand me dollar bills, but how many dollar bills do you have? I just counted. I have $36 in bills in my possession. I should to go to the ATM today to get more in case I run out. Eventually, Bitcoin will be similar in that most of our wealth won't be stored in the actual currency, but in bank deposits. I could withdraw actual currency from a Bitcoin bank with the tap of a button and have it on my phone in 10 minutes. Getting dollars requires going to a physical place to get physical bills. Transferring large amounts of dollars takes days. Transferring Bitcoin takes 10 minutes or so.
      - hfttrader 13y ago
        But why does transferring large amounts of dollars take days? There is nothing physical preventing banks from supporting fast transfers. They can do fast transfers with BTC or USD. Transfers are slow because there is little need to transfer large amounts of money quickly, and slower transactions help address issues with fraud. If you are buying a car, or paying for a house there is little need for a fast transactions. So with BTC or USD, transferring large amounts of money will take days.
        natrius 13y ago
        Good point. I think the debit card replacement angle is much more attractive than this one.
- anoncowherd 13y ago
  >> we have on the one side a dollar that has endured as a value store and medium of exchange for hundreds of years, and which has proven remarkably resilient (valuable) by any objective measure throughout the worst economic implosion since the Great Depression (which the dollar also survived) There's something you're overlooking though: the dollar was backed by gold until 1971, and that's where our problems really started mounting.
  - djur 13y ago
    What problems?
pron 13y ago
> If blockchain currencies are the future, central banking is over, and our society will have to figure out how to make the economy work with endemic deflation. There's a somewhat cyclical argument here, as a semi-deflationary (or at least unregulated) currency was already standard for many years, and central banking and regulated currencies grew because that system was unacceptable. So you could say that central banking was a response to problems with Bitcoin-like currencies, and Bitcoin is therefore reactionary. There is little evidence yet that Bitcoin is anything but a reactionary currency, and no evidence that crypto-currencies are in any way "the future" (I believe they will be used in the future, perhaps more than they are used now, just as gold and diamonds are still used in some circles; but I don't see any indication that they are the future).
- MarkPNeyer 13y ago
  >[the system of semi-deflationary currency] was unacceptable. Unacceptable to whom?
- dnautics 13y ago
  grew because that system was unacceptable Historically (you should read http://www.amazon.com/Great-Wave-Revolutions-Rhythm-History-ebook/dp/B002TQKS0K/ref=sr_1_2 http://www.amazon.com/Great-Wave-Revolutions-Rhythm-History-...) inflationary money systems have been the tools of those in power to quietly take from the poor and less powerful. Whether or not the current era of central banking was intended to be that way is a question for conspiracy theorists - but it's very clear that that is exactly what it has become. These inflationary systems were ALWAYS less stable than their preceding deflationary systems, and ALWAYS ended in revolution, or conquering, or plagues, or what not. Even Keynes knew this to be true: Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth. Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become 'profiteers,' who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery. Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.
dnautics 13y ago
"our society will have to figure out how to make the economy work with endemic deflation" So, 1600-1900 in the US (minus wars which were incredibly inflationary but always temporary in that era) not enough for you? The counterargument is this: In the era of central banking we have struggled to figure out how to make the economy work with endemic inflation. And it's failing. The two eras where the gap between the rich and the poor widened in a protracted, long-term fashion, have been in the aftermath of FDR's great dollar devaluation and after Nixon closed the gold window. 1972 was the last year the rich-poor gap was closing.
- ubernostrum 13y ago
  Look at all the things you're sweeping under the rug in your defense of deflationary currency: https://news.ycombinator.com/item?id=6977547 https://news.ycombinator.com/item?id=6977547
gnaritas 13y ago
> Hyperinflation would make it impossible for So would another planet colliding into the earth, fortunately we're in danger of neither. > If blockchain currencies are the future, central banking is over, and our society will have to figure out how to make the economy work with endemic deflation. No. Deflation is a part of bitcoin, not of crypto currencies in general. When deflation shows itself to be the problem it likely will be, we'll just switch to a better crypto currency that has predictable inflation built in; they exist already.
- eropple 13y ago
  And Bitcoin speculators are pricing in the frictional impact of changing to another arbitrary, fragmentary currency "when we need it"...where, exactly?
  - gnaritas 13y ago
    Who's better positioned to move to the next better currency than Bitcoin than Bitcoin speculators? And it won't be changing, there can, are, and will likely continue to be multiple working crypto currencies each attracting a following from those who believe in its core principles. As long as they're easily exchanged for the others as they are now, they can all win and one will just be considered the reserve currency because it's the biggest most stable one, just as in the real world with real currencies. Gold bugs will always like Bitcoin, but not everyone's a gold bug.
    - lamontcg 13y ago
      "Gold bugs will always like Bitcoin"... Is that like "Real Estate only goes up?" Remember that one from circa 2005? This problem really does lead to crypto currencies having no floor like Krugman points out. At some point everyone decides what the next hot crypto currency is, and suddenly Bitcoin turns into Friendster and there's a rush for the exits and the price collapses. It really does seem like cryptocurrency fanboys have bought into a form of "this time its different" because... crypto. And they're ignoring the fact that it is a currency with zero to backstop, and its clearly dependent upon fashion and popularity, since there's a growing marketplace now of competing cryptocurrencies. This thread has been very useful to convince me that bitcoin is a classic bubble. I have no idea when it'll pop, but it appears almost certain that it will.
undoware 13y ago
> If blockchain currencies are the future, central banking is over, and our society will have to figure out how to make the economy work with endemic deflation. Good luck with that. You've just said something along the lines of, "we'll just have to figure out how to live with terminal cancer." Now, I'm no economist, but deflation is standardly seen as really, really bad, and for good reason. It's not just 'the opposite of inflation', as you probably know: it's an accelerating, self-intensifying brake on commerce. How? Ask yourself: why buy today what can be bought tomorrow cheaper?
- holmak 13y ago
  > Ask yourself: why buy today what can be bought tomorrow cheaper? I know the the correct, rational answer to this question: "I won't buy it today, or ever, because it will always be cheaper the next day." (And then the deflationary spiral begins!) But if this is really true, why has anyone bought a Playstation 4 or Xbox One? They will undoubtedly be cheaper in two or three or ten years. Well, consumers might be totally irrational; what about firms? Why has any company in history ever bought a computer when the price of computing power has been falling rapidly and (mostly) predictably for fifty years? I don't think the question "Why buy today what can be bought tomorrow cheaper?" fully explains the behavior of people in the face of increasing purchasing power; there seems to be something else going on. Any thoughts?
  - ubernostrum 13y ago
    I don't think the question "Why buy today what can be bought tomorrow cheaper?" fully explains the behavior of people in the face of increasing purchasing power; there seems to be something else going on. Any thoughts? The problem is that the economic theories often cited by Bitcoin supporters presume certain fanciful behaviors. For example, in economic-theorist world, a frictionless spherical perfectly-informed perfectly-rational actor does not buy a six-pack of beer. Instead, the actor makes decisions: * I will buy one beer at this unit price. Will I buy two? * I will buy two beers at this unit price. Will I buy three? * I will buy three beers at this unit price. Will I buy four? * I will buy four beers at this unit price. Will I buy five? * I will buy five beers at this unit price. Will I buy six? * I will buy six beers at this unit price. Will I buy seven? * I will not buy seven beers at this unit price. * Therefore I will buy six beers. I've long assumed that all the people who actually make decisions in this way are locked up in the laboratories of mad economists, who observe their behaviors in the way a biologist might observe a terrarium.
nabla9 13y ago
Hyperinflation can only occur in cases where debt is in foreign currencies. For example the German hyperinflation was started by "London ultimatum" that demanded reparations in gold or foreign currency.

by natrius 13y ago

mapgrep 13y ago

>Hyperinflation would make it impossible for the Federal Reserve to buy up enough dollars to stabilize the value of the currency Even if this is true, where is the evidence that we're in imminent danger of hyperinflation? Despite mounting public debt, U.S. inflation has remained incredibly low since the start of the financial crisis four years ago, as has the interest rate that must be paid by the government to issue new debt. From what I can tell, we have on the one side a dollar that has endured as a value store and medium of exchange for hundreds of years, and which has proven remarkably resilient (valuable) by any objective measure throughout the worst economic implosion since the Great Depression (which the dollar also survived). On the other hand we have Bitcoin which is intriguing in many ways but which has demonstrable volatility even just in the short span of its existence. And which, as a feature, is not backed (in the hard economic sense) by any nation or bank. I mean it's cool and all but I see where Krugman is coming from.

natrius 13y ago
We weren't in imminent danger of hyperinflation. I think mass adoption of Bitcoin will cause hyperinflation. If every merchant you patronize today accepted Bitcoin, would you rather have Bitcoin in your bank account or dollars? I'd rather have Bitcoin. They're easier to transfer, they can't be counterfeited, and their supply can't be manipulated. If every merchant accepts Bitcoin and every consumer agrees with my logic, hyperinflation of the dollar would occur. Coinbase and its 0% transaction fees will lead to rapid adoption of Bitcoin on the merchant side. I'm less confident about the consumer side, but I see that happening as well.
- mapgrep 13y ago
  Bitcoin went up more than tenfold in less than six months. Then if fell by more than half in less than one month. So I strongly disagree that most people would want to use that for their checking account, paycheck, etc. I am also baffled by "they're easier to transfer" than dollars. Yes you can email BTC. But I can literally hand you dollars. No smartphone needed! And large amounts are trivially easier - I squiggle some lines on a piece of paper and hand it to you. Or if you want to stick to smartphones I can pull one out and send you dollars using one of dozens of e-payment platforms. Interesting thesis though.
  - natrius 13y ago
    You can hand me dollar bills, but how many dollar bills do you have? I just counted. I have $36 in bills in my possession. I should to go to the ATM today to get more in case I run out. Eventually, Bitcoin will be similar in that most of our wealth won't be stored in the actual currency, but in bank deposits. I could withdraw actual currency from a Bitcoin bank with the tap of a button and have it on my phone in 10 minutes. Getting dollars requires going to a physical place to get physical bills. Transferring large amounts of dollars takes days. Transferring Bitcoin takes 10 minutes or so.
    - hfttrader 13y ago
      But why does transferring large amounts of dollars take days? There is nothing physical preventing banks from supporting fast transfers. They can do fast transfers with BTC or USD. Transfers are slow because there is little need to transfer large amounts of money quickly, and slower transactions help address issues with fraud. If you are buying a car, or paying for a house there is little need for a fast transactions. So with BTC or USD, transferring large amounts of money will take days.
      - natrius 13y ago
        Good point. I think the debit card replacement angle is much more attractive than this one.
anoncowherd 13y ago
>> we have on the one side a dollar that has endured as a value store and medium of exchange for hundreds of years, and which has proven remarkably resilient (valuable) by any objective measure throughout the worst economic implosion since the Great Depression (which the dollar also survived) There's something you're overlooking though: the dollar was backed by gold until 1971, and that's where our problems really started mounting.
- djur 13y ago
  What problems?

pron 13y ago

> If blockchain currencies are the future, central banking is over, and our society will have to figure out how to make the economy work with endemic deflation. There's a somewhat cyclical argument here, as a semi-deflationary (or at least unregulated) currency was already standard for many years, and central banking and regulated currencies grew because that system was unacceptable. So you could say that central banking was a response to problems with Bitcoin-like currencies, and Bitcoin is therefore reactionary. There is little evidence yet that Bitcoin is anything but a reactionary currency, and no evidence that crypto-currencies are in any way "the future" (I believe they will be used in the future, perhaps more than they are used now, just as gold and diamonds are still used in some circles; but I don't see any indication that they are the future).

MarkPNeyer 13y ago
>[the system of semi-deflationary currency] was unacceptable. Unacceptable to whom?
dnautics 13y ago
grew because that system was unacceptable Historically (you should read http://www.amazon.com/Great-Wave-Revolutions-Rhythm-History-ebook/dp/B002TQKS0K/ref=sr_1_2 http://www.amazon.com/Great-Wave-Revolutions-Rhythm-History-...) inflationary money systems have been the tools of those in power to quietly take from the poor and less powerful. Whether or not the current era of central banking was intended to be that way is a question for conspiracy theorists - but it's very clear that that is exactly what it has become. These inflationary systems were ALWAYS less stable than their preceding deflationary systems, and ALWAYS ended in revolution, or conquering, or plagues, or what not. Even Keynes knew this to be true: Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth. Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become 'profiteers,' who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery. Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.

dnautics 13y ago

"our society will have to figure out how to make the economy work with endemic deflation" So, 1600-1900 in the US (minus wars which were incredibly inflationary but always temporary in that era) not enough for you? The counterargument is this: In the era of central banking we have struggled to figure out how to make the economy work with endemic inflation. And it's failing. The two eras where the gap between the rich and the poor widened in a protracted, long-term fashion, have been in the aftermath of FDR's great dollar devaluation and after Nixon closed the gold window. 1972 was the last year the rich-poor gap was closing.

ubernostrum 13y ago
Look at all the things you're sweeping under the rug in your defense of deflationary currency: https://news.ycombinator.com/item?id=6977547 https://news.ycombinator.com/item?id=6977547

gnaritas 13y ago

> Hyperinflation would make it impossible for So would another planet colliding into the earth, fortunately we're in danger of neither. > If blockchain currencies are the future, central banking is over, and our society will have to figure out how to make the economy work with endemic deflation. No. Deflation is a part of bitcoin, not of crypto currencies in general. When deflation shows itself to be the problem it likely will be, we'll just switch to a better crypto currency that has predictable inflation built in; they exist already.

eropple 13y ago
And Bitcoin speculators are pricing in the frictional impact of changing to another arbitrary, fragmentary currency "when we need it"...where, exactly?
- gnaritas 13y ago
  Who's better positioned to move to the next better currency than Bitcoin than Bitcoin speculators? And it won't be changing, there can, are, and will likely continue to be multiple working crypto currencies each attracting a following from those who believe in its core principles. As long as they're easily exchanged for the others as they are now, they can all win and one will just be considered the reserve currency because it's the biggest most stable one, just as in the real world with real currencies. Gold bugs will always like Bitcoin, but not everyone's a gold bug.
  - lamontcg 13y ago
    "Gold bugs will always like Bitcoin"... Is that like "Real Estate only goes up?" Remember that one from circa 2005? This problem really does lead to crypto currencies having no floor like Krugman points out. At some point everyone decides what the next hot crypto currency is, and suddenly Bitcoin turns into Friendster and there's a rush for the exits and the price collapses. It really does seem like cryptocurrency fanboys have bought into a form of "this time its different" because... crypto. And they're ignoring the fact that it is a currency with zero to backstop, and its clearly dependent upon fashion and popularity, since there's a growing marketplace now of competing cryptocurrencies. This thread has been very useful to convince me that bitcoin is a classic bubble. I have no idea when it'll pop, but it appears almost certain that it will.

undoware 13y ago

> If blockchain currencies are the future, central banking is over, and our society will have to figure out how to make the economy work with endemic deflation. Good luck with that. You've just said something along the lines of, "we'll just have to figure out how to live with terminal cancer." Now, I'm no economist, but deflation is standardly seen as really, really bad, and for good reason. It's not just 'the opposite of inflation', as you probably know: it's an accelerating, self-intensifying brake on commerce. How? Ask yourself: why buy today what can be bought tomorrow cheaper?

holmak 13y ago
> Ask yourself: why buy today what can be bought tomorrow cheaper? I know the the correct, rational answer to this question: "I won't buy it today, or ever, because it will always be cheaper the next day." (And then the deflationary spiral begins!) But if this is really true, why has anyone bought a Playstation 4 or Xbox One? They will undoubtedly be cheaper in two or three or ten years. Well, consumers might be totally irrational; what about firms? Why has any company in history ever bought a computer when the price of computing power has been falling rapidly and (mostly) predictably for fifty years? I don't think the question "Why buy today what can be bought tomorrow cheaper?" fully explains the behavior of people in the face of increasing purchasing power; there seems to be something else going on. Any thoughts?
- ubernostrum 13y ago
  I don't think the question "Why buy today what can be bought tomorrow cheaper?" fully explains the behavior of people in the face of increasing purchasing power; there seems to be something else going on. Any thoughts? The problem is that the economic theories often cited by Bitcoin supporters presume certain fanciful behaviors. For example, in economic-theorist world, a frictionless spherical perfectly-informed perfectly-rational actor does not buy a six-pack of beer. Instead, the actor makes decisions: * I will buy one beer at this unit price. Will I buy two? * I will buy two beers at this unit price. Will I buy three? * I will buy three beers at this unit price. Will I buy four? * I will buy four beers at this unit price. Will I buy five? * I will buy five beers at this unit price. Will I buy six? * I will buy six beers at this unit price. Will I buy seven? * I will not buy seven beers at this unit price. * Therefore I will buy six beers. I've long assumed that all the people who actually make decisions in this way are locked up in the laboratories of mad economists, who observe their behaviors in the way a biologist might observe a terrarium.

nabla9 13y ago

Hyperinflation can only occur in cases where debt is in foreign currencies. For example the German hyperinflation was started by "London ultimatum" that demanded reparations in gold or foreign currency.