About Krugman
There is little to argue about the fact that Paul Krugman is one of the leading economic experts of our time. On a shelf in his home in Princeton is the plaque attesting to the Nobel prize for economics. The “New York Times” reserves a generous space for him every week. His articles are also offered in Mandarin and Spanish. But there is something…
As my friend Gerald Goodman, chaos mathematician, used to say, "There's something about English Jazz that doesn't convince me." And it certainly is in Krugman as well.
It seems to me that your political positions sometimes cloud your scientific thinking. An almost almost Soviet attitude. For example, I find his almost maniacal obsession with Trump and the populist drift of the Republican Party really exaggerated, facts that can be worrying but which happen in a bipolar democracy that is suffering from a crisis of legitimacy.
A certain blindness
In the end it happens that by dint of fighting the components of a system or the tenants of an institution with cold weapons, we end up tearing the institution and the system themselves to shreds.
Krugman, and also other columnists of the "New York Times" (especially the female component), are blinded by Trumpism and, like Polyphemus, throw boulders at random. Someone strikes, like friendly fire, the wrong target.
It is a blindness that reminds me of that of certain Italian editorialists and intellectuals towards Silvio Berlusconi. Already Luigi Zingales, right on the “New York Times”, he had warned the liberals and democrats of America not to fall into the same error towards Trump as their Italian colleagues towards Berlusconi. Words in the wind.
Now Krugman dotes on Joe Biden, who is certainly doing well, even if Larry Summers seems to have some doubts about it. Let's hope Summers is wrong especially about inflation, which nobody feels the need for.
The narrative of cryptocurrencies
On the hot topic of cryptocurrencies, Krugman wrote one of the clearest - albeit partially acceptable - things he has read lately.
Due to its extension and its ramifications, the phenomenon of cryptocurrencies and the blockchain, which cyclically returns in vogue, is something really difficult to understand: its implications and applications are too many. It is as if, in a novel by Dostoevsky, the thread is lost (perhaps because the author himself loses it…).
That may be the beauty of reading Dostoevsky, but I don't think it is the beauty of cryptocurrency fiction. Cryptocurrencies, which could revolutionize the world of money, make themselves understood up to a certain point, then enter a sort of Baskerville moor, where they "sink" and are lost from sight.
Krugman himself argues that there is a lot of obtuseness around this topic, so much so that he entitled his speech in the "New York Times" that we are now proposing to you: Technobabble, Libertarian Derp and Bitcoin. To read it you will have to invest just five minutes.
One last thing: Krugman is often wrong, even if he will never admit it.
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Techno supercazzole, libertarian nonsense and Bitcoin
by Paul Krugman
The story so far…
Some readers have asked me to speak on Bitcoin and other cryptocurrencies, whose fluctuations have dominated financial market news lately. “Would you mind telling us what it is and what's going on?”
Well, I can tell you what it is. What is happening is, however, more difficult to explain.
The Story So Far: Bitcoin, the first and best-known cryptocurrency, was introduced in 2009.
It uses a cryptographic key, similar to those used in hard-to-crack codes – hence that initial “crypto” – to establish chains of ownership in tokens (packets of information) that entitle their current holders to be… well, owners of those tokens. And today we use Bitcoin to buy houses and cars, pay bills, make business investments and more.
If 12 years seems few to you
halt! halt! We don't actually do any of those things. Twelve years later, cryptocurrencies play almost no role in normal economic activity. We have heard of their use as a means of payment – in addition to speculative trading – almost exclusively in association with certain illegal activities, such as money laundering or, even, the ransom in Bitcoins paid to hackers to unblock the Colonial Pipeline.
Twelve years are a aeon in the field of information technology. Also Venmo, which I can use to pay my restaurant bill, buy fresh fruit at the kiosk next door and much more, was introduced in 2009.
Apple introduced its first generation iPad in 2010. Zoom came into use in 2012. When a technology becomes elderly like that of cryptocurrencies, we expect it to have become part of the fabric of daily life or to have faded away.
What's the point of this technology?
If normal, law-abiding people don't use cryptocurrencies, it's not for lack of effort on the part of their inventors and supporters. Many hours of work have been spent, and well paid, to try to develop a "killer app", which could finally introduce Bitcoin, Ethereum or some other currency or platform into our daily use.
I have attended numerous meetings with cryptocurrency and/or blockchain enthusiasts, to understand the concept behind it. In these meetings I, but also others, have always asked, in the most polite way possible: “What problem does this technology solve? What does it do that other technologies, much cheaper and easier to use, can't do as well or better?”
I still haven't had a clear and satisfactory answer.
Maybe it makes sense
Yet investors continue to pay huge sums for digital tokens. The values of major cryptocurrencies fluctuate wildly – Bitcoin drops 30% in the morning to then recoup most of the losses in the afternoon. Singular, isn't it?
The combined value has, however, sometimes exceeded $2 trillion, more than half the value of all intellectual property owned by American businesses.
Why are there people willing to pay large sums for goods that do not appear to generate wealth? The answer, of course, is that the prices of these assets continue to rise, so that early investors have made a lot of money and their success continues to attract new investors.
A Ponzi scheme?
This may all remind you of a stock bubble, or perhaps a Ponzi scheme – stock bubbles are, in fact, natural Ponzi schemes. But could a Ponzi scheme really go on that long?
Indeed, yes: Bernie Madoff has been running his scam for nearly two decades, and it could have continued even longer if the financial crisis hadn't intervened.
Now, a long-lived Ponzi scheme requires storytelling – and storytelling is where cryptocurrencies really excel.
First, cryptocurrency proponents are very good at techno-superbuzzers: they use arcane terminology to convince themselves and others that they are offering a revolutionary new technology, even though blockchain is now quite old by computer standards and does not it is still expressed in some convincing usage.
A libertarian joke
Second, there is a strong element of libertarian chatter. These are claims such as that fiat money, i.e. government-issued money not backed by reserves, will crash overnight. It's true: Britain, whose currency was still going strong last I checked, exited the gold standard 90 years ago.
But who keeps track of it?
Given all of the foregoing, are cryptocurrencies doomed to crash sooner or later? Not necessarily. One sobering fact even for cryptocurrency skeptics like myself is how consistently gold continues to be a highly valued commodity.
The gold analogy
Gold, after all, suffers from pretty much the same problems as Bitcoin. It may be thought of as money, but it lacks any attributes to be a useful currency: it cannot be used for transactions (try buying a new car with gold bars) and its purchasing power is extremely unstable .
Thus, when John Maynard Keynes defined the gold standard as a barbarous relic (barbarous relic) way back in 1924, he wasn't wrong. But the mystique of the metal, and the valuation of it, lives on. Is it conceivable that one or two cryptocurrencies would somehow achieve similar longevity?
…until a certain point
Maybe not. For one thing, governments are well aware that cryptocurrencies are used by very bad actors. Governments could then take steps on cryptocurrencies that, in breadth and depth, they have never taken before on the gold trade.
Furthermore, the proliferation of cryptocurrencies may prevent any of them from achieving the semi-sacred status that gold holds in the minds of countless traders.
The good news is, finally, that none of this really matters. Since Bitcoin and its kin have failed to achieve any significant economic role, what happens to their value is fundamentally irrelevant to those of us not in the cryptocurrency game.
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From: Paul Krugman Technobabble, Libertarian Derp and Bitcoin, The New York Times, May 20, 2021
Paul Krugman, columnist for the “New York Times” since 2000, is Distinguished Professor at the City University of New York Graduate Center. He won the 2008 Nobel Prize in Economics for his work on international trade and economic geography. @PaulKrugman
paul krugman….isn't he the same who said in 1998 that: “by 2005 it would have been clear that the effect of the web on the world economy would not have exceeded that of the fax.” ?