So I just saw this oped by an economics blogger at the New York Times. And I had to respond because he's saying Bitcoin is evil.
Bitcoin Is Evil
The Conscience of A Liberal
By: Paul Krugman
"It’s always important, and always hard, to distinguish positive economics — how things work — from normative economics — how things should be."
Well, yeah. Those two sound about as different as science and morality.
"Indeed, on many of the macro issues I’ve written about it has been obvious that large numbers of economists can’t bring themselves to make that distinction; they dislike activist government on political grounds, and this leads them to make really bad arguments about why fiscal stimulus can’t work and monetary stimulus will be disastrous. I don’t, by the way, think that this effect is symmetric: although people like Robert Lucas were quick to accuse people like Christy Romer of fabricating macro arguments to support a big-government agenda, this didn’t actually happen."
Okay wutdafuq did I just read?
"But I come now to talk not about macro but about money — specifically, about Bitcoin and all that.
So far almost all of the Bitcoin discussion has been positive economics — can this actually work? And I have to say that I’m still deeply unconvinced."
Well that settles it!
Case. Closed.
Paul Krugman's deeply unconvinced, guys. Better pack it up and go home!
To be successful, money must be both a medium of exchange and a reasonably stable store of value. And it remains completely unclear why BitCoin should be a stable store of value. Brad DeLong puts it clearly:
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)."
Dude, what a jackass. When he said "Bitcoin and all that" I already got the impression that he just dashed this off real quick and that he's not even really trying at this column...
And now he's just copy-pasting someone else's words in place of coming up with any thoughts of his own about it.
Okay then– Brad– a couple qualifications:
1) "Underpinning the value of gold is that... you can use it to make pretty things."
Correction: You can do a lot more with gold than make pretty things, like e.g. making "corrosion-free electrical connectors in computers and other electrical devices."
Just to make cellphones, companies use $500 million worth of gold each year.
goldbugs and crypto people both, your glorious destinies as merchant princes of the universe are intertwined!
(a) "the fact that you can use them to pay your taxes to the U.S. government"
Correction: you have to use them to pay your taxes to the U.S. governments, and you have to accept them in repayment of any debts.
It says it right on the notes.
So that's already one indication that digital currency is more real or has the potential to be more real than the U.S. dollar...
No one has to force me to use digital currency for it to be valuable.
(b) "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"
Seriously this time:
wutdafuq did I just read?
Okay...
Correction #1: Here is the Federal Reserve's own numbers on the real value of the dollar over an American worker's life time:
Some smartass in ancient times was the first to have the bright idea to shave some of the metal off the edges of his coins...
And then spend them as if they were worth their denominated value...
Even though he had devalued them because they now had less actual metal in them and were consequently worth less...
And then save up all the metal shavings and melt them together into an ingot worth exactly the amount of value he had stolen from his society that way. Then sell it.
That's why many coin edges are reeded.
Well that graph above is the exact shape of the jagged edge of the U.S. Dollar as the Federal Reserve shaved off all that purchasing power little by little and stole it.
Shaved off a little bit of you every year, cut you without letting you feel it, and then slowly drained some of your life from you.
Correction #2: It is absolutely unreal that anyone could suggest the Federal Reserve is a potential dollar sink.
Here's the Federal Reserve's own graph of the amount of dollars it has created:
So I'm not a mathematician or finance whiz, but uh, looks like that sink is clogged!
Now the faucet's looking pretty wide open...
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?
Paul, you answered your own question before asking it. An inherent characteristic of Bitcoin is a hard limit to the total supply of bitcoin.
Limiting the supply of bitcoin, unlike the unlimited expansion of the U.S. dollar supply, creates reliable scarcity and preserves bitcoin's value.
The floor on the value of bitcoin is the ceiling on its supply. But there is no floor on the value of the U.S. dollar because there is no ceiling on its supply. So the only people in the world who are allowed to create it, can keep making more of it until it's worthless.
And Krugman is seriously arguing that USD is a better money system than BTC because money has to be a stable store of value??
Here it is again...
Ladies and Gentleman,
Your stable store of value in USD:
And why?
Because, as Brad DeLong says, we have to just trust the Federal Reserve not to do this:
Whoops.
Well we don't have to trust Bitcoin not to screw us that way.
It's not subject to theft in the hands of institutional central controllers like USD.
"I have had and am continuing to have a dialogue with smart technologists who are very high on BitCoin — but when I try to get them to explain to me why BitCoin is a reliable store of value, they always seem to come back with explanations about how it’s a terrific medium of exchange. Even if I buy this (which I don’t, entirely), it doesn’t solve my problem. And I haven’t been able to get my correspondents to recognize that these are different questions."
Well they're not entirely different questions, Paul. The ability to exchange the value you create for other values you want or need is in itself very valuable.
In a highly productive, hyper-specialized economy like ours it is crucially valuable.
But anyways it is just amazing to read supporters of the Federal Reserve System criticizing Bitcoin on the basis that it isn't a reliable store of value.
When you can look at a graph and see the value of the U.S. Dollar evaporate and collect in the finance sector's pockets.
"But as I said, this is a positive discussion. What about the normative economics? Well, you should read Charlie Stross:
BitCoin looks like it was designed as a weapon intended to damage central banking and money issuing banks, with a Libertarian political agenda in mind—to damage states ability to collect tax and monitor their citizens financial transactions.'
Go read the whole thing."
No, I am not going to do that, Paul.
Not after that Brad DeLong excerpt.
There's an old saying in Tennessee— I know it's in Texas, probably in Tennessee— that says: "Fool me once, shame on... shame on you. Fool me— you can't get fooled again."
But as for this part:
"BitCoin looks like it was designed as a weapon intended to damage central banking and money issuing banks"
That's right, bitch.
Also:
"The automobile looks like it was designed as a weapon intended to damage buggy whip manufacturers." -Stross, 1917
Stross doesn’t like that agenda, and neither do I; but I am trying not to let that tilt my positive analysis of BitCoin one way or the other. One suspects, however, that many BitCoin enthusiasts are, in fact, enthusiastic because, as Stross says, 'it pushes the same buttons as their gold fetish.'
Wow. Stross said that? Really?
Sounds like someone's got a Stross fetish.
What buttons would those be, Paul?
The reliable store of value button?
That button you've been ridiculously trying to press this whole column with your thieving Federal Reserve system that actually admits that it's been stealing value from the people who use its money for a century?
Is that the button you mean?
Yeah it sure does press those buttons.
