Krugman On Bitcoin and the Gold Standard

twoallbeefpatties writes "Prominent Keynesian economist Paul Krugman has left a note on his blog at NYTimes about his view of Bitcoin, discussing its similarity to the gold standard and suggesting a drop in 'real gross Bitcoin product' as its users hoard the currency rather than spend it."

Comments

Terrible summary, decent blog post

[Baloroth]

By "discussing its similarity to the gold standard" the summary means "he points out one way Bitcoin is flawed." Specifically, that people hoard it instead of spending it (creating an unstable monetary system). Fewer transactions actually means less value, since the whole point of a monetary system that lacks intrinsic value (gold at least had that) is that it gets spent. Since the amount of Bitcoins is limited, and as time goes on the early adopters get "richer" (since less is being mined), they have an incentive not to spend. But the system will only succeed if they do spend and create a thriving system.

This is a massive gaping flaw in Bitcoin that I haven't seen pointed out yet. It means that Bitcoin will nearly always be a deflationary system. It also requires people to keep investing computing time, while their return on investment only gets less and less over time, and early adopters have no reason to spend, creating fewer transactions to be verified. And this can't be fixed: the limit to the number of Bitcoins is builtin to the system and cannot be changed.

So to everyone going "not another Bitcoin story!": read it. It actually points out a way that Bitcoin is (possibly) flawed (unlike so many of the stories on /.) And from a real economist, too.

Re:Keynesian?

[Jonner]

Qualifying Krugman as a "prominent Keynesian economist" is like calling Stephen Hawking a "prominent Einsteinian physicist".

I call shenanigans.

That analogy would make sense only if the theories of John Maynard Keynes were as universally accepted as those of Einstein. Economics never has been and probably never will be as testable a science (if it's a science at all) as physics.

Re:Bitcoin

[shutdown -p now]

. I don't have electricity costs as I take it from the hallway

There ain't no free lunch. Either you're still paying for that electricity indirectly, or someone else is bearing that cost. If the latter - which seems to be more likely - then it's about as moral as tapping that electricity and reselling it directly, then pocketing the profit.

Just because something is provided to you "for free" (really, at the expense of your community) doesn't mean that you should feel free to abuse it for your own sake.

Re:Keynesian?

[geekoid]

But you can learn from historic reactions to varies pressure. For example Austerity has never gotten anyone out of a recession. Now, if people would look at that, look at it's history and act upon that, we wouldn't be having these issue in Washington.

So the testing part is looking at previous success a failure, and the prediction side would be using the previously success as a reaction to current economic situation and seeing the results.

You can't really do it in the lab, yet, but you can apply it.