This example always amuses me because Krugman guilelessly puts forth the case for central control while glossing over the results:
>>"But eventually the economists prevailed. More coupons were issued, couples became more willing to go out, opportunities to baby-sit multiplied, and everyone was happy. Eventually, of course, the co-op issued too much scrip, leading to different problems ..."<<
Of course, these different problems are just ignored. Krugman never seems to want to discuss whether these new problems, entirely caused by centralized control, are worse than the problem the "alert management" intended to solve in the first place.
It's what makes his oft-use example so excellent. Here you had, presumably, a small group of highly-educated and, presumably, reasonably intelligent folks who couldn't even manage an economy with 150 homogenous players. And yet, we expect much better results when we introduce billions of players and millions of additional variables.
i think its ironic that you're putting forth the case for unmanaged economies while glossing over the results.
i think most economists (including Krugman) would agree that managing an economy is hard, and that oftentimes, the people in charge don't get it right. but that doesn't mean the alternative is better.
in this specific case (bitcoin), the alternative to managing the money supply centrally is a fixed supply of money. in an environment where the economy (the gross output of the market) is growing, that leads to deflation. krugman points out that deflation slows down economic activity, possibly catastrophically. do you disagree?
The economy is already centrally controlled. A few centuries ago, much of the world, even the outer reaches of Europe, had mostly independent, semi-nomadic people living on it - including the land the USA is on.
Now the vast majority of people are wage slaves for a very tight group of intermarrying heirs - the Waltons, the Koches, the Sauds, the Mars's, the Johnsons, the Newhouses, the Rockefellers etc.
From 1993 to 2008, the US unemployment rate never hit what the current rate is - 7.6% unemployment. Most of those people currently have no control of the economy, or their own lives. The idea that the government's protection of this central racket may lessen is of little concern to most of these unemployed.
To me it seems the problem with the Babysitting coop was price fixing. The price of of an hour of babysitting was always 1. If the price of an hour of babysitting was allowed to float you would not have the shortages.
Float compared to what? The price of an hour of babysitting was always 1 because the only thing on the exchange is an hour of babysitting.
I suppose you could argue some hours of babysitting are more valuable than others, and people could negotiate, say, 4 hours for 5 coupons or vice versa. It's not clear this either (a) wasn't already done on some ad hoc basis (I'd imagine if it was agreeable to both parties, it'd probably happen) or (b) would have provided a solution to the liquidity problem, though.
Float compared to supply and demand in a free market. Instead of issuing 1-hour coupons, they should have issued an arbitrary currency, say, Shillings. Then buyers can request babysitting paying at 1 shilling per hour, and sellers could say that they want 1.3 shillings per hour. The value of the currency needs to float with supply and demand.
The whole argument in the article is a pathetic straw-man. The value of bitcoin floats with supply and demand. When the supply is fixed when bitcoins can no longer be mined, then the supply is based on how much is circulating vs being held.
The value of bitcoins floats with supply and demand, that is correct. However the demand for any currency is tied to the supply/demand for the total number of goods that are sold/bought with that currency. As the value of these goods rises over time towards infinity demand for bitcoins will rise over time towards infinity. Supply of bitcoins on the other hand is inevitably slowing down and thereby the value of bitcoins will rise towards infinity.
This makes it very cheap to "import" goods but prohibitively expensive to "export" any. It also provides a huge incentive not to spend or lend any money. Demand will fall, loans will be harder to get, innovation will come to a standstill and overall the economy will collapse.
This is called deflation and this is why we have huge central banks full of well educated people carefully monitoring the economy to adjust inflation and deflation.
Interesting. Do we have the same situation with gold? Continuous deflation, caused by constant supply combined with increasing demand, causing its value to rise to infinity?
Indeed it does apply to gold and to currencies using the [Gold Standard](http://en.wikipedia.org/wiki/Gold_standard) which has caused problems in the past, which is why it isn't used anymore as a currency on any significant scale.
> If you have a $10 bill and I replace it with ten $1 bills, do you feel richer?
If I exchange a $10 bill for ten $1 bill, I don't feel any more wealthy. However, if my $10 buys ten times as much stuff, then I would feel 10 times more wealthy.
See the original Krugman article. It goes further into explaining efforts to try and rectify their economy, as well as a general discussion on the principles involved.
Well, right. They added more coupons, which fixed the problem.
But I don't see how that's significantly different from allowing the price of babysitting to float -- I know doubling the number of coupons isn't exactly the same as making them half as valuable, but it's similar.
But since bitcoins simply adjust in value according to market demand, I, as well, don't understand how Krugman's story applies to bitcoin. If everyone thinks bitcoin's value will always go up, because it's deflationary, and everybody hoards -- well not everybody will, right? There must be other factors at hand, surely?
Allowing the price of baby sitting to float relative to what? It's babysitting all the way down.
That's one of the great things about this hypothetical, is that it forces you to think of the underlying barter transactions instead of misleading yourself into treating the currency as having intrinsic value.
How does that fix the problem of people hoarding coupons by not going out, decreasing the underlying economic activity that creates the need for the coupons in the first place?
And once everyone is going out, no one wants to stay in because the value (in coupons) of staying in is hardly worth (paraphrasing a member of the group) tolerating other people's children.
"I will babysit for you 2 hours if you babysit 1 hour for me today".
For the coop this would work by paying extra 30 minute coupons. e.g: one hour of baby sitting on saturday might be paid with three 30 minute vouchers. Thus encouraging buyers to prioritize weekday outings.
It happens all the time in real economies -- virtually every recession. Uncertainty leads to hoarding, which leads to a smaller supply of liquid money with velocity, which leads to deflation.
Even in a world with zero hoarding, bitcoin will deflate indefinitely forever, because production will continue to grow while money supply remains constant.
Think about that in somewhat more pragmatic terms. Lets say Alice babysits for Bob for 1 coupon per hour. And hoards coupons. Over time as the supply of coupons becomes more precious she can charge larger and larger 'rates' for her services. Eventually she has all the coupons and nobody else can get any baby sitting.
At which point we discover her maiden name is Bernanke! And she has set herself to be the central bank of babysitting coupons, which she will loan out but only at extortionate rates bwa ha ha ha!
Basically if someone has all the currency then you can't really make a market with it. Even if the prices fluctuate. Long before the market shuts down it becomes very inefficient.
Once Alice has all the coupons, nobody can get any babysitting because they have consumed babysitting without producing anything. Either they need to start babysitting for Alice, or find something else valuable to sell to Alice, or decline to babysit and leave Alice stuck with a pile of worthless coupons.
Yes and the whole co-op collapses which is sad. In order to prevent Alice from killing the co-op other members would have to figure out what she was doing and actively stop using her baby sitting services. What is sadder still, once she controlled the coupons, the only way for the co-op to restart and get back to baby-sitting goodness would be to create a new set of coupons and keep her out of it. One would hope she wasn't some sort of socio-path bent on destroying the co-op's ability to function.
It's a good point. Coupons were a pegged currency (with fixed exchange rate to commodity or to other currency). The same wrong assumption that made Bretton Woods failed.
"Now, it’s worth noting that this fatal flaw of Bitcoin is not a fatal flaw for all cryptocurrencies or algorithmic currencies. One can imagine a Bitcoin-like currency with a smart algorithmic central bank (indeed, Bitcoin does have an algorithmic central bank–just an economically illiterate one)."
It's also worth noting that it's theoretically possible for Bitcoin's "monetary philosophy" to change over time.
If a majority of Bitcoin miners, and thus (in theory) the "economic majority" (https://en.bitcoin.it/wiki/Economic_majority), agree on changes to the system (for example, the rate of mining) everyone can migrate to newer versions of the software that will accept those rules, and those who don't will risk their version of the blockchain not being accepted by the majority of users.
One interesting question is what happens if there's a fairly even split between the group that accepts the old and new rules. Would the value of each blockchain be effectively halved?
What is there to fix? Can't a minority client just blackball UTXOs, allowing them to exist in the blockchain but refusing to publish or accept transactions built off them?
By definition, a UTXO is not in the history of good money.
Can someone pro-bitcoin provide a counterpoint to the deflationary spiral criticism? I don't have enough of an understanding in economics to think of one.
The flaw in the argument is that BitCoin is not (currently) a unit of account (we don't price contracts or goods or services in BTC), and is (nearly) infinitely divisible.
So even if 90% (or 99%) of all BTC is being hoarded, the other 10% (or 1%) can be divided up for use in transactions. That much speculations will cause wild gyrations in value and massive short term volatility, but the people using BTC to transact JUST DON'T CARE.
I really don't care if I'm buying my $1000 flat screen with 1 BTC or 0.0001 BTC. Neither does the merchant. I bought the BTC, sent it to the merchant, and the merchant sold it so quickly that the value didn't change much, and we are happy.
So that's the short term. In the long run, the volatility might decrease as the total market capitalization increases to 10x or 1000x of its current value.
Then we can start to think about using it as a unit of account. If we do, we may enter a deflationary spiral, but by then BTC will already be used in an enormous swath of the economy.
So I interpret Krugman's argument not so much that BTC CAN'T take over the world, but that it SHOULDN'T take over the world. (I'm not sure if I agree. Many economists have been arguing over this point for decades, and I'm not smart enough to sort it all out.)
Unfortunately, deflation is not so simple a concept. If your currency quickly deflates and hoarders EXPECT it to deflate, no one will be interested in lending and the economy will suffer.
Lending is not an optional feature in a modern economy. You need some level of lending to have credit balances with merchants or investment in stocks and bonds. An economy without lending can take few risks on innovation, such as YCombinator has. They also have less incentive to spend money hiring employees because the risk/reward ratio is higher.
A currency that continuously deflates is also likely to hit a liquidity crisis when everyone attempts to sell at once and the exchanges stop buying. We've already seen exchanges stop selling or choose to impose hurdles to buyers because Bitcoin demand was too high.
Until they resolve the money supply issues, the Bitcoin is likely to remain merely an expensive and risky proxy for illicit drugs.
This is a bit of a nit, but the real exchange(s) does not buy or sell anything; it just matches orders. So you should probably say "...a liquidity crisis when everyone attempts to sell at once and the noobs stop buying".
1. Deflation isn't fixed. Lenders have to make a guess about the spectrum of possible future rates of deflation, inflation, or even the abandonment of the currency.
2. Lenders seek profit, not revenue. 6% interest on 4% deflation is hardly greedy. You're ignoring the risk/reward ratio. Deflation causes defaults because existing loan costs become more onerous. 6% on 4% would almost certainly be a net loss after defaults. The high risk of default during deflation is part of why interest rates hit 18% in the 1980s.
3. Deflation is typically a product of most people having less access to your currency. Debtors would make an estimation that they could afford your loan at a lower-priced Bitcoin (in currency and labor costs). They'll be more likely to default when the currency is more scarce either due to the worse exchange rate of money or exchange rate of labor.
That is not a flaw in the argument - that is a flaw in your understanding of the argument, which makes you think this is a valid rebuttal.
Money is supposed to represent value. Not to actually be value. There are new humans arriving in the world all the time. And new resources are being mined from the earth, and created intellectually all the time.
If the money supply does not match these new things then the currency fails.
You can't just do a "currency split" and issue more notes - doing that effectively tells everyone their resources are half as valuable which is clearly wrong - the value of the resources didn't change.
You need to issue more currency so that the sum total of money available is equal to the sum total of value in the world. Any currency that doesn't do that fails.
You need to issue more currency so that the sum total of money available is equal to the sum total of value in the world. Any currency that doesn't do that fails.
I think many of the bitcoin fans reject this. They want to be able to hold (say) 1/1000th of the world's wealth, and be able to keep on holding 1/1000th of the world's wealth as long as they don't spend any of their hoard.
It's like trying to create a financial crisis because you expect to be on the right side of it.
> sum total of money available is equal to the sum total of value in the world.
This part is not completely accurate when you consider that money changes hands over time as value is created. (Multipliers)
If the someone produces 1 widget per day (different person each day), and someone else consumes 1 widget per day (and becomes the producer the next day), 1 widget-dollar is needed forever to help move the widgets. If the pattern of production and consumption is more complicated, we need more dollars (debt) to keep track.
The sum total of money needs to be something like the sum total of all current unsettled debt, and it needs to be less than the amount of future production of the debtors, in each's share (or else they will default).
> You need to issue more currency so that the sum total of money available is equal to the sum total of value in the world. Any currency that doesn't do that fails.
That's only if you want the currency to maintain a stable value, neither inflationary nor deflationary.
Alternatively, the currency will have deflation. It's not obvious that that necessarily implies "failing".
I think Bitcoins role as a store of value that can be used for payments makes for a pretty good tool. Like gold, except able to have ownership transferred, even in small micropayment-sized portions, without a cost incurred.
I agree that this is the appropriate way to look at bitcoin. It is not so much a currency at the moment, it is more like an asset, like stocks, bonds, or gold. If we assume bitcoin is an asset, we are not seeing deflation per se, we are seeing an increase in value.
A store of value that can be anonymously transferred and exchanged without significant costs has some inherit value in society. The only problem with bitcoin, is that if we consider bitcoin to be an asset, than it's price is entirely determined by speculation and nothing else. At least with gold, there are industrial/commercial uses for it that put a lower bound on the price. Not so much with bitcoin. Personally, I don't need an anonymous store of value, so if I am going to be speculating, I would rather do so with stocks of companies, as those are actually backed by the value of the company itself. I may throw some money into bitcoin just for fun, but I wouldn't do it to use it as a currency. My gut is telling me that most people jumping in are not interested in using it as a currency either.
Of course, this doesn't necessarily mean bitcoin won't become more like a currency in the future. It is possible that it will stabilize. Considering that the world has never really seen anything like this before (well there were a few attempts that failed in the past), it is impossible to predict what is going to happen.
>it's price is entirely determined by speculation and nothing else
Its price is based on the work required to make the coins and the properties of a minted coin (can't be forged, etc). The coin has virtual properties, but they're still useful properties.
Your scenario of an ever increasing currency is impossible, because everyone will hoard it. No transactions will be possible because it will be impossible to buy.
Krugman is talking about "The Paradox of Savings". Here's F.A Hayek's rebuttal to the argument when it was originally proposed back in the 30s: (http://mises.org/daily/2804) (Sorry if I'm a bit of a broken record on this but it applies too well to bitcoin).
Seems to me it's an argument for the status quo, so if you are say Warren Buffet it is a vary valid concern. If on the other hand you just graduated undergrad and had a huge debt and your wage was actually set in bitcoins this would be great for you because the cost of paying off your dept would be from your bitcoin point of view spiraling to zero, as would the cost of everything else. That sounds like a pretty awesome situation to be in.
Be wary of financial explanations, because in most cases when a business person or economist says its good, they either mean its good for keeping things stable, its good for the elite, or its good for the average person, all of which might not be you. For example, you might see someone on CNBC saying they need to make sure they don't have a disorderly default, but really if you are in a position to take advantage of that temporary disorderly market you could gain from that.
If you are going to insist on a deflationary economy, you have to admit the possibility of wages going down over time.
For a cartoon example, with high enough deflation and a less than perfect job market, that debt might represent more years of work when you are 35 than it did when you were 25.
Wages in what currency? Bitcoins or USD or? If wages in USD decrease by a huge amount and I get paid in Bitcoins, I can eventually hire more people for a cheaper amount if I pay them in USD.
But I really want to talk about it in terms of units of productivity. If the value of bitcoin goes up over time, then each unit of productivity will be worth less bitcoin over time. Meaning that relative to units of productivity, a debt will increase.
In your first example, you relied on the assumption that your boss or customers or whatever would not take the current BTC value of your productivity into account. In your new example, you are relying on the people you hire not taking the value of their labor in BTC into account. Neither of those are reasonable assumptions.
> provide a counterpoint to the deflationary spiral criticism?
Is that the retarded idea that no one will buy anything if prices keep falling? Look no further than computers, cell phones and all manner of electronic gadgets. Their prices keep going down, but everyone keeps buying them.
If you need/want something now, you'll buy it now.
Here's a summary of the article: "The State-Controlled Mainstream Media paints a gloomy picture of a currency that can't be controlled by the State."
EDIT: Perhaps a downvoter might want to point out a flaw in what I said?
Not a downvoter (can't, probably won't when I can), but your tone is unnecessarily aggressive and dismissive, especially considering GP just wanted a rebuttal and made no claims of their own.
True, some gadgets stay at certain price points, but you keep getting more and more value for your money. We could rephrase "electronics getting cheaper" as "your purchasing power towards electronics increasing", if that's better.
> In some future world where no one wants the new gadget the price of the old one will stop falling!
What's the point here? It's not like the old gadget would get sold at the same price for ever and ever.
Yes, people will obviously buy the things they need immediately but will defer purchases where they can. Houses would be an obvious example. Everyone would try to spend less, reducing total output.
Note the contradiction: It was diagnosed that the recession of recent years was caused by uncontrolled lending which was possible thanks to issuing money by central banks and keeping low interest rates in this way. At the same time bitcoin that is free of this flaw and prevents reckless lending is criticized.
Deflation and hoarding was never a real problem. Baby-Sitting Co-op IS a silly story that does not scale. Gold had similar deflationary property as bitcoin and somehow it was used in trade for ages. Critics miss the point that monetary wealth is useless if you can't spend it, so at some point hoarders will say: enough, it's time to use some life. At the end of the day, money is just numbers with the potential to convert it to comfortable life.
My selfish, self-interested side says: I would wish more hoarders who collect numbers and don't convert it, so they don't use real world resources. They leave more for me!
Just because an asset perpetually appreciates does not mean it has a present value of infinity. I hope to write a deeper rebuttal soon in the form of a blog post.
Thanks for all the replies made in the sibling comments and their descendants.
To me it seems that for the time being (e.g. the next 50? 100? years), as long as we have a currency alternative to bitcoin such as USD, these problems can be avoided by just switching currencies to be able to buy/sell/borrow/invest in, as long as other parties agree to it.
In other words, when people run out of physical goods to trade, they will start trading IOUs, at which point inflation has occurred within your economy whether you intended it to or not.
Yes, because an IOU can be traded after its initial creation, and due to peoples inherent desire to save (hoard) assets theres no guarantee the IOU will ever be cashed in. Inflation occurs because people learn that more IOUs can be issued then are ever cashed in.
Economies are naturally structured around this asynchronous trading structure because we want to help each other survive.
In 1998, Krugman also predicted that "by 2005 or so, it will become clear that the Internet's impact on the economy has been no greater than the fax machine's."
Funny how the title of the article is "Why most economists' predictions are wrong."
I think he's really out of his element, making more technological than a economical prediction.
The mistake in the article is that bitcoins can subdivide AND increase in value. Bitcoins are not going to have liquidity crisis, as much as some people seem to want it to.
If/when bitcoins ever become an important currency they will have all the same problems as other currencies, and others unique to being bitcoins. E.g. central banks will try to manipulate them, governments will tax and regulate them, and people will speculate on them.
Being able to subdivide and increase in value are not attributes unique to bitcoins.
Oh, and the article DOES address this exact point.
> There are some objections to this: for example, that since each bitcoin can be infinitely divided into components, the money supply can keep growing. But that’s not related. If you have a $10 bill and I replace it with ten $1 bills, do you feel richer?
This seems to address the point to me. If the supply of dollars is constrained (liquidity trap) then deflation does NOT make people happier.
The problem is that they increase in value, to a degree that the individually rational choice is not to spend them "now". The babysitting coop coupons were effectively subdividable as well: participants could have taken the initiative to say "I'll provide two hours of babysitting for an hour coupon" or "I'll provide 15 minutes of babysitting for 1/2 an hour coupon".
[Edit, for elaboration]
That would be rational when the value of babysitting in the further future (e.g. Valentine's day) exceeds the value of babysitting in the nearer future (e.g, Feb. 11).
There won't be a liquidity crisis only if all people dealing with bitcoins will accept to lower their prices in response to the deflation of the currency - this would include workers paid with bitcoin. Not very likely. Would you accept to be paid less and less every year (month, week...)?
If everyone changed their prices, and their salary all at once you did nothing at all. You just changed a number - you didn't increase the money supply at all.
i.e. the total amount of purchasing power didn't change.
Subdiving does not increase the overall supply of Bitcoin though. There would be no way in the future to obtain Bitcoin, except by taking it from someone else. Or someone else's hoard, as the case may be. (This is at least briefly touched on in the article)
This is also covered in the book "Debt: The First 5000 Years", when gold-standard and silver-standard monarchies had real problems keeping money in circulation due to the effects of merchants' savings and overall finite supply mixed with the large demand for coin in the Orient.
For liquidity, what matters is that the VALUE of the liquidity is adequate. Whether you're trading full bitcoins or fractions of a bitcoin doesn't matter.
But as Bitcoin becomes more scarce won't it also become more valuable? And as it becomes more valuable, won't it be more likely that people refuse to spend it to hold onto that value?
A slightly related article I read recently about how should we evaluate the claims of people much smarter than ourselves. i.e. in this specific article the example is if Krugman makes some claim about economics should we just accept them as he is probably leagues ahead in terms of knowledge and expierience in the subject.
I don't quite buy the analogy. Seems to me that part of the problem was having tokens that could only be exchanged for one thing, and even then at a fixed exchange rate.
Here the problem is that bitcoins are illiquid: you can't spend them freely on most goods and services, and you can't get a consistent exchange rate into a liquid currency, and the supply problem means that hoarding is sensible... right up until the crash.
"If you have a $10 bill and I replace it with ten $1 bills, do you feel richer?"
Yes, If I split my 10 into 10 ones and if 9 can pay today for something that cost 10 yesterday, I feel richer.
This causes folks to save and horde like in Japan. Because its deflationary.
It's more difficult to control the masses via monetary policy if things are deflationary... That's why governments try to maintain slight inflation. Comfortable folks don't produce for the government.
It has nothing to do with "comfortable folks producing for the government" and everything to do with coordinating production and consumption.
If everyone produces for 20 years and accumulates money, and there is no inflation for 20 years, and then they all try to retire and spend it, but there is no one to produce, since everyone wants to retire, you get hyperinflation chasing the small amount of available goods. Alternatively you inflate the currency for 20 years, to encourage people to consume their savings as a sustainable pace.
Remember: if you spend your inflationary money NOW on durable goods (canned food, wood, whatever), then you can trade those goods for inflated currency later, and not lose any value.
But, if you don't spend your money (maybe because there is nothing on the market worth buying), then inflation is the natural correction to bring the money supply into balance with the goods supply.
"I’ve also been told that this is only valid if the entire world is on Bitcoin"
So far the author is right. The whole world does not run on Bitcoin only, therefore the arguments against Bitcoin do not apply. But here is where he gets it wrong:
"but if you think about the world today, that’s not true. There are plenty of currencies out there, and the supply of some of them is too low, and that hurts the people who use that currency. The fact that the dollar exists doesn’t prevent the yen from being too strong."
The author does not cite examples of people hurt by a currency when a supply is low, because he is wrong: there are no such examples.
I don't know why he cites the Yen. The Japanese economy is not that bad. It is not that great either. But it is doing okay. Therefore if Japan is okay with a deflationary currency, why would not Bitcoin be okay too?
Or someone may cite the example of the failure of the gold standard in the US in the 1960s, but it would be incorrect. The gold standard failed because the US Federal Reserve continued to increase notes in circulation, while not replenishing gold reserves, which triggered all sorts of bad consequences, see [1]. By contrast, in Bitcoin it is algorithmically impossible to increase "notes" (coins) in circulation beyond the limit of 21M coins.
One thing that strikes me is the person with the most coupons happens to be the person with the least amount of need for the coupons. Therefore they will never redeem them and eventually everyone runs out.
A true currency (and Bitcoin if its a true currency) allows the most avid babysitter to get other things with it instead of what she already has a surplus of.
His argument seems to say that the LIQUID supply of bitcoins is shrinking because people are hoarding them. You can make the same argument for stocks or anything else that is traded for cash, but it's wrong. Everybody will have a price that they're willing to sell at - it's the fundamental idea underlying every exchange market.
Why is Krugman being thought of as a genius in predicting market trends and pricing assets? He has never proven himself in this way, he does not manage money, he is only rich from book sales. Krugman is just a politician who promotes his own opinion of how the US economy should be handled.
Just because something has value does not make it a currency. If that coupon ONLY gets you a reduction in price off something then its a discount. Here is another tidbit that makes it not a currency: coupons are intended to not be redeemed more than once.
If only one person can ever use it then it fails at its intention of goods exchange. It's not currency.
currency is a medium of exchange, a token representing a store of value (durable good) elsewhere.
Gold coins are a store of value, since the coin itself can be melted down and used as a good (but these days gold has a pile of speculative bubble on top of it)
The key point is that bitcoin is not actually a currency (like the dollar or euro), it is a commodity (like gold or silver). Thus it will be subject to speculative bubbles and unpredictable swings in value, and the typical holder will not be able to do much about that.
Central banks and fiat currency remove the danger of speculative bubbles...or at least, they centralize the danger to a single, publicly controlled entity.
> they centralize the danger to a single, publicly controlled entity.
Come to think of it, we should centralize the backbone for the internet in the white house basement, so that we "centralize the danger to a single, publicly controlled entity."
They certainly were designed to be that way, and that was intended to be in sharp contrast with the conventional way currency is managed.
A more sophisticated argument about bitcoin might go this way:
a. Bitcoin provides an alternative that is both a useful experiment and is edifying in a way that may help keep the managers of currency systems honest.
b. Bitcoin is like releasing an uncontrolled nanotech experiment into the environment that could turn all our money into grey goo, and governments better put in place measures to prevent and eradicate experiments like this.
>>"But eventually the economists prevailed. More coupons were issued, couples became more willing to go out, opportunities to baby-sit multiplied, and everyone was happy. Eventually, of course, the co-op issued too much scrip, leading to different problems ..."<<
Of course, these different problems are just ignored. Krugman never seems to want to discuss whether these new problems, entirely caused by centralized control, are worse than the problem the "alert management" intended to solve in the first place.
It's what makes his oft-use example so excellent. Here you had, presumably, a small group of highly-educated and, presumably, reasonably intelligent folks who couldn't even manage an economy with 150 homogenous players. And yet, we expect much better results when we introduce billions of players and millions of additional variables.