deflation

A sign of the times? Conservatism and denial of reality.

Bitcoin's deflation problem by Ryan Avent

TWO weeks ago we published a Free exchange column examining whether Bitcoin could be considered a true money, and if not, why not. Mike Hearn, one of Bitcoin's most prominent software developers, responded to the column somewhat dismissively. I wrote an e-mail response to Mr Hearn, the gist of which I will reproduce here. He makes two broad criticisms. The first is that we have lazily repeated the argument that deflation will kill Bitcoin, which in his view has been debunked. And the second is that we are naive to think put much faith in official inflation statistics. 

I think Mr Hearn may have misunderstood the piece's argument. It was not that deflation would kill Bitcoin. Rather, it is that deflation will prevent Bitcoin from becoming a unit of account, and that, in turn, will keep it from displacing traditional currencies. But Bitcoin could survive and indeed thrive without becoming the coin of the realm. 

The issue, as the piece explains, is that deflation in the unit of account leads to unemployment, thanks to the fact that wages generally don't adjust downward. Mr Hearn suggests that the idea that deflation might be costly is controversial among economists. I must disagree; it really isn't. Economists would love it if he were right that deflation didn't matter—that money, in economists' parlance, is neutral. If wages adjusted quickly and cleanly then they could go back to applying really straightforward classical economic models and everyone's life would be simpler. But the data are very clear on this point; wages are "sticky", and so deflation in the currency in which wages are set is costly.

(emphasis added.)

Baker has a contrarian take which has some truth to it.

cryptocurrencies

Bubbles, Banks And Bitcoin by Frances Coppola

The economic book of life by Izabella Kaminska

A Pick-Up Mini Internet Symposium: **More Than** Five Posts on BitCoin Triggered by a Question from Adrienne Jeffries of The Verge… by DeLong

Bitcoin

An Ubernerd Weighs In by Krugman

Krugman on bitcoin and economic predictions

Bitcoin Is Evil by Krugman

The reverse psychology of Bitcoin by Izabella Kaminska

The Year of the Weasel by Krugman

Medici-coin and the U.S. government

I like the show Da Vinci's Demons* in that the mythos has Da Vinci's humanism and science in tension with the church and unaccountable authority. Also Da Vinci himself - played by Tom Riley - is portrayed as a bit of a wag.** On the show, the Medicis are his sponsors.

Medici-coin by Izabella Kaminska

I think DeLong has a better comparison: the U.S. Government is now like the Medieval Medici Bank.

In a way, the United States government would then look like the Medieval Medici Bank. The Medieval Medici Bank doesn't pay you interest. It charges you fees. You don't lend it money in order to boost your wealth. You lend it money in order to keep your wealth safe--so that if the Pope excommunicated you and you had to flee the city of Lucca in the dead of night with only the clothes on your back, when you got to Paris you could draw on the local Medici bank. In a similar way, since 1990 the average growth rate of the economy has never been lower than and has often been much higher than the average interest rate the US pays on its debt. The US can simply borrows, roll over the borrowing, and watch, as time passes, the debt it owes shrink relative to the size of its economy. No reason to fear inflation. No policy changes required in order to make people hold Treasury debt at low interest rates. It just happens.

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*new season in 2014
** He's an idiosyncratic genius like Jonny Lee Miller's Sherlock Holmes.

NSA & BitCoin*

State of Deception: Why won’t the President rein in the intelligence community? by Ryan Lizza

Why I want Bitcoin to die in a fire by Charles Stross

"Mining BtC has a carbon footprint from hell (as they get more computationally expensive to generate, electricity consumption soars).... Bitcoin mining software is now being distributed as malware because using someone else's computer to mine BitCoins is easier than buying a farm of your own mining hardware.... Bitcoin violates Gresham's law: Stolen electricity will drive out honest mining.... Bitcoin's utter lack of regulation permits really hideous markets to emerge.... It's also inherently damaging to the fabric of civil society. You think our wonderful investment bankers aren't paying their fair share of taxes? Bitcoin is pretty much designed for tax evasion. Moreover, The Gini coefficient of the Bitcoin economy is ghastly, and getting worse, to an extent that makes a sub-Saharan African kleptocracy look like a socialist utopia.... 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.... Which is fine if you're a Libertarian, but I tend to take the stance that Libertarianism is like Leninism: a fascinating, internally consistent political theory with some good underlying points that, regrettably, makes prescriptions about how to run human society that can only work if we replace real messy human beings with frictionless spherical humanoids of uniform density.... The current banking industry and late-period capitalism may suck, but replacing it with Bitcoin would be like swapping out a hangnail for Fournier's gangrene."

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*Also known as Dunning-Kruegerrands
see Dunning-Kruger_effect

(via DeLong)