Paul Krugman chimes in on Bitcoin

[JBDive]

As an example of how wrong this man is how many of you agree with this statement from his blog?

"Bear in mind that dollar prices have been relatively stable over the past few years – yes, some deflation in 2008-2009, then some inflation as commodity prices rebounded, but overall consumer prices are only slightly higher than they were three years ago."

Only those without families and living with mom and dad could even start to agree with those statements. Have you bought chicken lately or pork? Pork Loin which sold for $1.99 last year was $5.99 at the store this week! London Broil hasn't touched sub $4 in a year and don't get me started on hamburger at $3.50 and higher. Pet Milk over $5/gallon. Gas $3.60 if your lucky, College tuition, doctors bills, shall I go on? You know it cost us over $1000 to get a 1 inch cut in my son's head stapled at the hospital. One staple, no medicine just a simple wash of the wound and 3 minutes of a doctors attention and this man says things are only "slightly higher"?

Has Krugman even looked at the Dollar Index or various USD vs. other currencies for the past few years? Obviously not or he is willing to flat out lie by making the above statement that the dollar "have been relatively stable over the past few years".

[JBDive]

I am a huge fan of comments and will try to skim through the useless garbage post in hopes of finding a gem here or there. In Krugman's blog there is one comment that did catch my eye:

19.
Bill Jencks
Philippines
September 7th, 2011
5:45 pm
Dr K criticizes gold and Bitcoin because of the hoarding. How very surprising -- isn't that what the banks have been doing with their own QE fiat dollar handouts? They have also all invested -- not in America -- but abroad to get out of a fast devaluing dollar. All plain to see for those with eyes willing to see it.

Get some rest Dr K, your arguments against using both Bitcoin or a gold standard are pretty feeble to say the least.

[cottoneyeJoe]

"What we want from a monetary system isn’t to make people holding money rich; we want it to facilitate transactions and make the economy as a whole rich. And that’s not at all what is happening in Bitcoin."

In my opinion, this is specious.

First, it's not at all that bitcoin doesnt facilitate transactions. It does that quite nicely, without the cost, risk, and inefficiencies of centrally managed currencies...it's that people's actual behavior at this point in time in bitcoins history differ from his stated ideal.  The ability to facilitate transactions is pretty well proven and if measured from only as far back as say March or so of this year, has grown considerably. Measured from say June, not so much, but I dont think plummeting.

Given the looming threat of renewed recessions in multiple world economies, I'd wager that measuring transactions in any currency over similar periods show significant declines. Especially given that the range of things you can purchase with bitcoins at this point are essentially discretionary spending. Wasnt the recent US consumer confidence measure at some historic low? It's not bitcoin, Mr. Krugman.

Secondly, in what currency is it true that people holding money arent by definition richer than those who dont? Hoarding can and does happen with any currency or commodity, especially in tough economic times. What about bitcoin makes that a uniquely condemning problem?  What about the trillions of dollars banks via QE2 and many major corporations are currently holding, instead of investing in jobs or loaning it out to drive the economy?

Weak conclusion, Sir. Please look deeper at what's happening here.

While I dont think these things point to the failure of bitcoin, I believe he has a point that growth in transactions is an important factor in it's success. Get out there and spend some BTC people!

[evoorhees]

Paul Krugman wants to start a fake alien invasion to stimulate the economy.

Oh my. Did it not occur to you that he was making a joke to drive home a point? 

Joke or no joke, the point he was making is that "destruction and war cause economic stimulus" and this is one of those great economic fallacies - as Bastiat labelled it, "The fallacy of the broken window"

Krugman is abhorrent in his economic reasoning. True, he is a Nobel laureate, but so was Hayek, and they have 100% contrasting views. One of them is wrong... and perhaps it's the one who recommends an alien invasion and war to stimulate growth. He said similar comments in the 9/11 attack (that it'd be "stimulative" to rebuild Manhattan) and again in the Japanese earthquake.  Krugman is that worst kind of economist... the kind who gives politicians the academic veneer behind which to hide as they spend and tax society into stagnation.

If you want to read more of my commentary on this guy, here's three posts on my blog dedicated to him specifically:  http://evoorhees.blogspot.com/search/label/Paul%20Krugman

I'm not saying this as a joke: Krugman's antagonism toward Bitcoin is the best endorsement of the protocol yet.

[Grinder]

Only those without families and living with mom and dad could even start to agree with those statements. Have you bought chicken lately or pork? Pork Loin which sold for $1.99 last year was $5.99 at the store this week!

This has to be the dumbest argument I've seen here in a while, and there have been plenty. You are saying that the statistics must be wrong because you can find a couple of products that has increased more and some other services are really expensive. http://en.wikipedia.org/wiki/Confirmation_bias

[mikethebodacious]

Just read the rest of the article as well as another; the headline isn't so positive.

Paul Krugman Explains Why Bitcoin Is A Stupid Currency:

http://www.businessinsider.com/paul-krugman-on-bitcoin-2011-9#ixzz1XI9uT8aB

I like to have a contrarian view from that of Paul Krugmans, simply because the guy is a dunce (Nobel prize be damned).  Go read Azizonomics for a good opinion on the financial and monetary world....

[JBDive]

Only those without families and living with mom and dad could even start to agree with those statements. Have you bought chicken lately or pork? Pork Loin which sold for $1.99 last year was $5.99 at the store this week!

This has to be the dumbest argument I've seen here in a while, and there have been plenty. You are saying that the statistics must be wrong because you can find a couple of products that has increased more and some other services are really expensive. http://en.wikipedia.org/wiki/Confirmation_bias

You show me one item your paying less for now than you did 3 years ago. The examples are given to reflect what the "man on the street" is seeing and being forced to pay and reflect on the economy as a whole. Current inflation rate is only being put in check because there are so many people now living on the margin, there are millions now buying only what they need to survive day to day. Even then the bogus rate reported by the U.S. Bureau of Labor Statistics is 3.6% and has been rising for a year. Given that the FEDS intentionally manipulate the reported CPI the only thing you can go by to reflect true inflation is what your paying out of your own pocket to live.

The "statistics" used by the U.S. Bureau of Labor Statistics are clearly manipulated thus the numbers reported are a lie.

[netrin]

Paul Krugman vs Orson Welles

[kjj]

And because of that, there has been an incentive to hoard the virtual currency rather than spending it. The actual value of transactions in Bitcoins has fallen rather than rising. In effect, real gross Bitcoin product has fallen sharply.

This is his main point, I think.

And I can't exactly disagree, mostly because I have no idea what the real gross Bitcoin product is.  Which makes me wonder where he got the numbers.

Either way, regardless of his conclusion, he understands the key issue.  I hope we are paying attention.

I would like for the bitcoin community to grow over the next year, or two, or five, so that the next time he takes a look, he'll correctly come to the other conclusion.

[hashman]

And because of that, there has been an incentive to hoard the virtual currency rather than spending it. The actual value of transactions in Bitcoins has fallen rather than rising. In effect, real gross Bitcoin product has fallen sharply.

This is his main point, I think.

And I can't exactly disagree, mostly because I have no idea what the real gross Bitcoin product is.  Which makes me wonder where he got the numbers.

Either way, regardless of his conclusion, he understands the key issue.  I hope we are paying attention.

I would like for the bitcoin community to grow over the next year, or two, or five, so that the next time he takes a look, he'll correctly come to the other conclusion.

First of all, a good refutation of the "hoarding problem"  is here:

http://falkvinge.net/2011/08/21/bitcoins-deflationary-economy-not-a-problem-in-itself/

Second of all, I am curious how one could conclude that the value of transactions in Bitcoins has fallen.  Has anybody made the chart from the block data?     

[netrin]

Only those without families and living with mom and dad could even start to agree with those statements. Have you bought chicken lately or pork? Pork Loin which sold for $1.99 last year was $5.99 at the store this week!

This has to be the dumbest argument I've seen here in a while, and there have been plenty. You are saying that the statistics must be wrong because you can find a couple of products that has increased

Grinder, what JBDive has personally and empirically observed is not controversial. What is controversial is the weighted basket of goods used to calculate the core consumer price index in the United States. Headline inflation (7%) includes food and energy costs (14%). However to calculate inflation the Fed uses "Core CPI" (3%) and PSE, both of which exclude food and energy costs, due to their historic volatility, leading some to fear deflation, which because core CPI relies heavily on housing prices should not be surprising.





Note that 2007-2008 was known as the World Food Crisis. What are we experiencing now?

[JBDive]

Only those without families and living with mom and dad could even start to agree with those statements. Have you bought chicken lately or pork? Pork Loin which sold for $1.99 last year was $5.99 at the store this week!

This has to be the dumbest argument I've seen here in a while, and there have been plenty. You are saying that the statistics must be wrong because you can find a couple of products that has increased

Grinder, what JBDive has personally and empirically observed is not controversial. What is controversial is the weighted basket of goods used to calculate the core consumer price index in the United States. Headline inflation (7%) includes food and energy costs (14%). However to calculate inflation the Fed uses "Core CPI" (3%) and PSE, both of which exclude food and energy costs, due to their historic volatility, leading some to fear deflation, which because core CPI relies heavily on housing prices should not be surprising.





Note that 2007-2008 was known as the World Food Crisis. What are we experiencing now?

Don't forget that if an item which is included in the CPI data shows a wild spike in price it too is tossed out so of course the numbers they come up with are clearly gamed. If true inflation rates were used first off you would have the American people in further fear that things are getting worse and second the FEDS would have to pay out billions more in various COLA tied payments.

[mikethebodacious]

Only those without families and living with mom and dad could even start to agree with those statements. Have you bought chicken lately or pork? Pork Loin which sold for $1.99 last year was $5.99 at the store this week!

This has to be the dumbest argument I've seen here in a while, and there have been plenty. You are saying that the statistics must be wrong because you can find a couple of products that has increased

Grinder, what JBDive has personally and empirically observed is not controversial. What is controversial is the weighted basket of goods used to calculate the core consumer price index in the United States. Headline inflation (7%) includes food and energy costs (14%). However to calculate inflation the Fed uses "Core CPI" (3%) and PSE, both of which exclude food and energy costs, due to their historic volatility, leading some to fear deflation, which because core CPI relies heavily on housing prices should not be surprising.





Note that 2007-2008 was known as the World Food Crisis. What are we experiencing now?

Exactly, the fact that technology is included in the CPI but food is not is sheer lunacy.  Well corn skyrocketed in price but iPads went down so deflation is here!  Also, who gives a shit about falling home values when food prices have inflated in the double digits in the past 2 years?  Just look at the record-breaking food stamp participants shows food prices have gone up too much due to QE*.

[netrin]

I would love to see these charts priced in gold. If you look at crude oil, gold, and to a large extent food, they are all parallel even or in particular during the wild swings since 2008. As far as I can tell, gold is not a bubble, fiat has collapsed along with housing and stocks.