If Bitcoin ever graduates to anything more than a toy currency (last count was a billion or two USD globally?) then it's going to have to deal with graduate level problems. The business cycle is a thing I'm afraid, and the management of a recession to prevent it's becoming a depression is as close to a fusion of science and art as you'll ever see. The necessity for this isn't going to change as long as the human brain continues to function as it does.
In good times people want more money - a discussion on what they should want is irrelevant, lets stick to the facts - and in bad times people want to protect what they have (aggressively so). Now consider that what makes times good vs bad is not determined by money - it's determined and prolonged by some other shock like an asset misvaluation, the destruction of a massive crop, or some combination of external factors underlying the real or nominal non-money thing.
Let's say it's a rice crop. Those dependent on rice freak out, and push all their money into safe assets, those dependent on those dependent on rice do the same. The chain reaction continues until all the economy's money is tied up in safe assets, not being spent, and everyone is sat at home waiting for it to blow over. If policymakers do not intervene correctly at this point, this situation will become a depression, and much misery will ensue.
So what do we do? We make safe assets more expensive to lower the risk/reward ratio for commercial activities: we make bank holdings very unrewarding (lower interest rates), we devalue the money in circulation and provide liquidity in one move (print money), and government invests in big infrastructure (liquidity, jobs, momentum, signalling etc). All of this is designed to keep things moving and ward off a depression. And it works - this is why we abandoned the gold standard.
So given that Bitcoin means nothing to rice, or most other external factors, and not to the rigidities that exacerbate recessions - how exactly do we deal with this in the described autonomous utopia?
I very much agree that the regulators of currency leave a tremendous amount to be desired, but unfortunately this appears to be one of very few economic problems where decentralisation is not the answer.
There is a reason we need to have a global economy for food production. Bad weather in one region? Import from elsewhere. (Same applies to all commodities and services.)
The economy works quite well naturally, but for massive government invervention, such as what you are proposing, which would have massive unforseen consequences (such as improverishing people, which punishes the poor the most).
By the way, were it not for abandoning the gold standard, the US would not be able to finance a perpetual state of war. (It would have to pick wars with terminal conditions and actually win them.) It would also be much harder to finance 1984.Net.
The typical response to this is for me to get screamed at about how I am obviously wrong because all economists disagree with me and because it's just obvious. I don't think that's a legitimate response.
Rice was an example that was palatable to both my lazy fingers and I hoped to those who may not have appreciated a jargon filled response. It does not detract from the clearly presented general case which you are more than encouraged to investigate, I have done my part in spelling it out for you.
> but for massive government invervention, such as what you are proposing
I am not proposing anything, I am merely describing. The issue at hand is not readily solved by the markets, which in this situation a) are in a state of risk aversion and b) possess very bad quality information that is difficult to reason about. This is classic market failure that is documented in places better than my mind - go forth and google.
If you are so used to receiving that response that you describe it as "typical" then I would suggest that you are either quite the revolutionary thinker, or that you are, in fact, typically wrong. Which do you think it is?
> Rice was an example that was palatable to both my lazy fingers and I hoped to those who may not have appreciated a jargon filled response. It does not detract from the clearly presented general case which you are more than encouraged to investigate
I am also using rice as a stand-in for the general case.
> I am not proposing anything, I am merely describing.
That's a meaningless distinction. Academic communists who supported Stalinism also claimed innocence when Stalinism resulted in the deaths of millions. I am not accusing you of anything on that scale, but I am saying that ideas have consequences. You are responsible for the consequences of the ideas you support and promulgate.
> This is classic market failure
Right, and I don't think markets are inherently failure-prone. If I drive my car into a light pole, is that a classic automobile failure? So I dispute the very terminology here.
Case in point: The 2008 mortgage crisis was caused by a massively distorted market for mortgages and easy credit. The first was created by Barney Frank with Freddie and Fannie, the second by the Fed. Future generations will remember this as a "market failure" and use it to justify the existence of future incarnations of Freddie, Fannie and the Fed.
> I would suggest that you are either quite the revolutionary thinker, or that you are, in fact, typically wrong.
There is a third possibility, which is that lots and lots of people think like me.
> I am also using rice as a stand-in for the general case.
The existence of futures, commoditised goods, integrated markets and all the rest have clearly not eliminated shocks of the type I describe. What's your point?
> You are responsible for the consequences of the ideas you support and promulgate.
Again, you appear to be having issues with the concept of description. What I explained is how things actually work, why they need solved, and how they are currently solved by intervention. There is no argument here. I could very easily describe your arguments, and why they're flawed, and in no way would that amount to my supporting or promulgating them.
> I dispute the very terminology here
Dispute the terminology all you like, it's just a name for the what I described, it has no bearing on the concepts which you have failed to address cogently at all.
> There is a third possibility, which is that lots and lots of people think like me.
I think you mean that lots and lots of people think like me, and I would ordinarily dispute that too.
> What I explained is how things actually work, why they need solved, and how they are currently solved by intervention.
Except that the people who disagree with your "description" would point out that they are not solved by intervention, the underlying problems are simply exacerbated until they spiral out of control and experience a black swan event and the entire edifice collapses into an orgy of post hoc problem fixing that just messes things up more and more all the time.
At best this is just delaying the inevitable, and at worst drastically increasing the magnitude of how bad it's going to be when it becomes impossible to delay it further.
In theological terms, your claims are equivalent to appeals for plenary indulgences as effective as an effective long term strategy for the mitigation of sin. ;)
> I think you mean that lots and lots of people think like me, and I would ordinarily dispute that too.
Lots and lots of people think like both of you. Bitcoin takes the question out of the political realm and into the technical realm. If you don't buy keynesian economics and want no part of it, then for the first time in modern history it is largely possible for you to circumvent systems based around those assumptions and management strategies.
There might be arguments that the very fact this is now possible eliminates the ability of keynesian systems to act in what they describe as a benevolent fashion, but it's largely irrelevant now. The cat is out of the bag and nothing is going to put it back in.
> Except that the people who disagree with your "description" would point out that they are not solved by intervention
If the problem is warding off a depression, then the solution I described is indeed a true solution. It may not be optimal, but starting to discuss optimality of the potential solutions was a little beyond the scope of the point I was making.
> At best this is just delaying the inevitable
Let me explain to you what a business cycle is. Here is an example long term growth trend: http://wolfr.am/17dwVbt and here is the same with business cycles http://wolfr.am/1iaDMSa - if there is an inevitability, it's the trend. I can't comment on your inevitability, because you didn't actually say what it was.
> at worst drastically increasing the magnitude of how bad it's going to be when it becomes impossible to delay it further
Money is nominal, it has no long run effects. Everything I've described has been the use of a nominal tool in the smoothing of short-run fluctuations. The long term trend is unaffected.
> If you don't buy keynesian economics and want no part of it, then for the first time in modern history it is largely possible for you to circumvent systems based around those assumptions and management strategies
This is not relevant to what I said. If sufficiently large your Bitcoin utopia will suffer these problems and you won't have a solution. God help you if all your eggs are in that basket when reality strikes.
> If the problem is warding off a depression, then the solution I described is indeed a true solution.
If the problem is warding off an invocation of oomkiller at the kernel level, then just setting the jvm heap size lower is indeed a true solution. We'll just ignore the fact that it doesn't actually address the problem and the memory leak still exists and has actual consequences, because we stopped oomkiller from randomly killing innocent processes which is definitely a noble goal.
Keynesian solutions have consequences, they are not magic. And they are not really solutions at all if you're not deceived by the simple sophistry of them, they're band-aids. That
> The long term trend is unaffected.
Is terribly amusing, I guess that's why we don't have financial crisis anymore or hyperinflation or sovereign debt defaults or poorly managed national economies or anything of the kind.
> If sufficiently large your Bitcoin utopia will suffer these problems and you won't have a solution.
That's because setting a shitty raft on fire so you're forced to deploy life vests instead of drowning is simply not a solution, and pretending otherwise is just stupidity masquerading as tactics.
Whatever, as long as it works for you hope you're happy with it, I'm not buying.
Wow. Normally I wouldn't say something that appears this "snarky," but...
I think the wrongness of this speaks for itself. This is being used as an excuse for massive manipulation of people's lives and businesses. Apparently, that has "no long run effects."
Definitely reminiscent of "In the long run, we're all dead."
Your posts mostly consists of rambling that the established economics definitions of efficiency, market failure and so forth are wrong. You call an entire profession slippery and dishonest.
You are clearly pushing your agenda, in a fashion that IS intellectually dishonest. Try having a conversation where you actually use the jargon of the subject matter. Market failure means one thing when you are discussion economics, don't try to invent your own definition. That is dishonest and poor argumentation technique.
> You call an entire profession slippery and dishonest
Academic economics isn't a profession.
> You call an entire profession slippery and dishonest.
I didn't call all economists slippery and dishonest. So, this is a bizarre and blatantly false accusation.
I don't even think all economists who accept the jargon and go with it are dishonest. It would be hard to do anything else. But I think certain jargon is inherently biased. Somebody originated that jargon.
> in a fashion that IS intellectually dishonest
How so? I think it's pretty fair to criticize my point of view, but I don't think you can support the accusation that I'm intentionally misleading people. That's a pretty high bar to reach. I'm not going around intentionally inventing confusing terminology.
Re: astroturfing, I regret bringing that up. But the guy I was talking to didn't seem to be interested in discussing the issues, he seemed to be playing language games to "win" an argument. But that is just my perception, I'm not even sure I'm right about that.
Those "language games" (I assume you're referring to my having to twice clarify the definition of description) were necessary a) because you were putting words in my mouth; and b) half of your argument centred around attacking me like I was pushing some agenda: I was describing reality.
> But the guy I was talking to didn't seem to be interested in discussing the issues
I made a clear point with a clear example and well defined boundaries. Some of what's been said here - a lot by you - has been so wrong/irrelevant/flawed that I wasn't willing to entertain it, on this point you are correct. I'm 2 weeks in to a new keyboard layout you see, and the thought of the amount I'd have to type to address them all properly was too much to bear.
This would have to take the form of me having claimed you said something you didn't, not the form of me claiming an implication of your statements that you don't agree with.
> (I assume you're referring to my having to twice clarify the definition of description)
Now thrice, and it's irrelevant because you are also "pushing an agenda," as you put it. You can't really do one without the other. Every fact about reality has implications for human action.
> Some of what's been said here - a lot by you - has been so wrong/irrelevant/flawed that I wasn't willing to entertain it,
I think this is an example of not pursuing intellectual discussion, like I was talking about.
Another reason I brought up astroturfing is because you have a new account.
That's an ideological statement and an axiom of your belief system, it is not however reality nor something everyone agrees with. That's why people scream at you, you are being ideological but speaking as if it's a fact. Markets fail, they do not always work well naturally, and government is not always the problem.
My economic beliefs are based on observation of reality. I don't know how you want to define "ideological" and "axiom," but I would not call them either. Certainly, they are not "axioms."
> Markets fail, they do not always work well naturally, and government is not always the problem.
Markets always work well eventually, and physical force (which is typically weilded by governments) is the only thing that can arrest that process. In the short term, certainly, there can be market disruptions. There are all kinds of ways to deal with those so they don't have to be problematic.
That's a religious statement, not a factual one. Please open an economics textbooks and find the chapter on market failures. You are talking ideological nonsense, you are not describing reality.
Edit: I checked your profile; you're quoting Ayn Rand; your mind is already fucked. I'm done with this conversation as it's impossible to reason with anyone who thinks highly of that insanity. The only thing Ayn Rand is a good starting point for is how to brainwash young minds with terrible writing and an idiotic philosophy. She's a joke.
To be clear, Ayn Rand didn't write about economics. So, you can't take my economics views as representing her views.
> your mind is already fucked. I'm done with this conversation as it's impossible to reason with anyone who thinks highly of that insanity. The only thing Ayn Rand is a good starting point for is how to brainwash young minds with terrible writing and an idiotic philosophy. She's a joke.
That's completely untrue. I'm a very intelligent and very well-educated person, and I agree with Ayn Rand. And there are a lot of people like me.
Ayn Rand's views are actually quite intuitively reasonable---and there is a lot of techincal philosophical work that has been done to show that they are true.
(a) there is an objective reality
(b) we can gain knowledge about it
(c) we should act self-interestedly in the pursuit of happiness
(d) we need freedom (in the classic liberal sense) to do that
Which of these views causes you to automatically dismiss me out of hand?
If you want to make a cogent criticism of Ayn Rand, I will tell you why I think it fails.
> That's a religious statement, not a factual one
It's not a religious statement. I realize that you are accusing me of believing certain things on faith, and I completely reject that. I am a scientist.
I definitely suspect we probably disagree on what "always work well eventually" means, though, which I left undefined.
> By the way, were it not for abandoning the gold standard, the US would not be able to finance a perpetual state of war.
you're correct, but a few things:
1) the gold standard never fully went away; while we implemented Keynesian fiat money, we then pegged it to Oil production, hence the term "Petrodollar". It was a little amusing that we went to war in Iraq (under the WAR ON TERROR banner) immediately after Hussein switched to the Euro as the default currency. [1] Even in it's weakened state, the Petrodollar is still the main currency of choice.
2) The Gold Standard switch is the tip of the iceberg. We should be talking about the US Bankruptcy. Check out the Trading with the Enemy Act of 1917 (specifically, the 1933 amendment) [2], and House Joint Resolution 192 of June 5th, 1933 [3]. Those two acts set up the perpetual state of war in the US, though some would say it happened when congress went sine die during the civil war.
3) Fiat money is _awesome_ in a world in bankruptcy. Since 1933, people/citizens are the source of all money. we live in a world of abundance now since the industrial revolution, and in the next 20 years, as machines take over all the old grunt-labor jobs, we're going to have a glut of people unable to do the jobs they were trained to do. under any resource-backed economy (gold, oil), this would be catastrophic. However, this is why we have institutions like the Bank of International Settlements in place, to post bonds and discharge debt for insolvent countries/corporations. Money is debt, as the Youtube video tells us. We're now in a world where a Promise to Pay (an IOU) is in fact the money itself [4]. In this world, everyone that has a "Sophisticated Investor" level of understanding of the game can act as their own BIS, effectively becoming another Carnegie, Rockefeller, Warburg, or Oppenheimer.
I suspect you're a lewrockwell.com reader, or at least one who follows a more libertarian leaning (correct me if wrong). Back when I was championing the gold standard, I used to say a lot of the same things. Much of what they said was right, but was missing the massive caveat that it was only correct within the confines of HJR-192. Gold/Silver is only payable for private commerce outside the jurisdiction of Wickard v. Filburn [5] nowadays. Michael Badnarik, former Libertarian Presidential Candidate, teaches a common law class that explains many of these concepts, so that you can preserve and exercise those pre-1933 rights [6].
> If Bitcoin ever graduates to anything more than a toy currency (last count was a billion or two USD globally?)
This isn't a response to any of your points, but I'm deeply amused to see someone still calling Bitcoin a 'toy currency' at a market cap of $2b. Many people were calling Bitcoin a toy currency when the market cap was more like millions. Truly, people can differ in opinions a great deal.
I knew I'd get called out on that no matter how I worded it. I have nothing against Bitcoin, but in regard to the points I made - yes, it's a toy currency: it's magnitude is nowhere near enough to be even close to relevant to the business cycle. There are many circumstances where the phrase "Bitcoin is a toy currency" would not apply, this just isn't one of them.
The point is $2bn is a significant amount of money. There's a LOT that can get done transaction-wise with that kind of money. It's the start of a mini-economy of its own... but only mini in comparison to current economies.
It's already a bigger economy than some small countries. That's a pretty decent size in my book. Add to that the fact that it's increasing in size exponentially at the moment and it's looking like it's going to be a pretty serious currency.
Th problem with bitcoin, if nothing else, is that the exchange market, USD:BTC is rather illiquid. Doesn't MTGOX take forever to process the withdrawals in USD?
This is a big problem that does make it a toy currency. The slow exchange probably brings up the price. I expect, without much proof, that the USD:BTC ratio would be lower, at least short term, if you could exchange them easier.
$2b in circulation is pretty decent of course, but if you cannot convert those BTC to USD with ease then the valuation is flawed.
By three days, I mean, I initiate a transfer from bitstamp, and I get it into my thai bank account within three business days. The transfer is always verified and initiated on the other end on the same day I make it.
Not following my logic at all. This is the currency of a country, which has a business cycle - it's relative magnitude is not relevant. Bitcoin is a global currency - the impact of the business cycle of the underlying assets is directly proportional to the amount of global assets represented by Bitcoin. Bitcoin BC's won't affect us until Bitcoin holdings are sufficiently large.
Edit: or it's not evenly distributed. A few thousand people holding all of their wealth in Bitcoin would be enough to study this.
> We make safe assets more expensive to lower the risk/reward ratio for commercial activities: we make bank holdings very unrewarding (lower interest rates)
Wouldn't this force people already worried about the future to buy into less abstract stores of value like houses? Wouldn't that just end up monetizing houses eventually leading to a bubble? Isn't the risk/reward ratio an indicator for the health of an economy and isn't skewing it treating the symptom not the cause?
> we devalue the money in circulation and provide liquidity in one move (print money)
But we use this newly created money to buy assets which the market had no interest in buying inflating their price and funding contractors at the expense of everyone else.
> and government invests in big infrastructure (liquidity, jobs, momentum, signalling etc)
But unlike market investors, there's no worry about ROI. Building these large infrastructure projects may pay off but theres no downside and they could just end up making a few people very rich.
> And it works - this is why we abandoned the gold standard.
I thought the gold standard was abandoned because Nixon refused to convert France's dollar holdings back to gold in 1971.
> Wouldn't this force people already worried about the future to buy into less abstract stores of value like houses?
It forces people to spend/invest money primarily, which keeps the economy growing, prevents job losses etc. Houses are one form of investment, but they're no less tangible than many others from the point of view of your average investor.
> But we use this newly created money to buy assets which the market had no interest in buying inflating their price and funding contractors at the expense of everyone else.
This is not about magicking up new demand, it's about restoring the previous demand before the fear set in. Inflation is a reality, yes, but it's not inherently a bad thing - in these situations there's an acceptable level where the benefits outweigh the costs.
> But unlike market investors, there's no worry about ROI. Building these large infrastructure projects may pay off but theres no downside and they could just end up making a few people very rich.
It barely matters if they pay off at all, the end product in this kind of capital expenditure is much less important than the process of doing it. Making a few people rich is the usual outcome of high-value expenditure, why would that be any less true in a recession? It's a nothingness on the scale of rescuing a flailing economy.
> I thought the gold standard was abandoned because Nixon refused to convert France's dollar holdings back to gold in 1971.
I'm not a historian. It's certainly why we don't go back to it, and why not a single country on the planet uses a fixed monetary system anymore.
The problem isn't investment in houses, its the monetization of houses. Unlike gold or bitcoin with finite supply, demand for houses creates a corresponding increase in supply which is a waste of resources which could have gone elsewhere. If inflation is particularly bad you could end up with Chinese ghost cities.
Lowering the difficulty of exams so that previous scores are reached again sounds like curing the symptom to me. How are the benefits outweighing the costs?
> Making a few people rich is the usual outcome of high-value expenditure
Its high value expenditure with newly created wealth taken from the savings of everybody else. It matters a great deal if it doesn't pay off.
The benefits outweigh the costs because the alternative is a depression - and that's a really bad thing, people die etc. Also this isn't a symptom of a problem needing cured, it's more a symptom of the human condition.
> Its high value expenditure with newly created wealth taken from the savings of everybody else.
It's either savings or new wealth, it can't be both.
> It matters a great deal if it doesn't pay off.
I'm not sure you'd be of that opinion in a depression.
> - and that's a really bad thing, people die etc.
I'm all for saving people, lets call it charity though and not investment.
> It's either savings or new wealth, it can't be both.
True, I meant currency, its new currency taken from the savings of everybody else
> I'm not sure you'd be of that opinion in a depression.
Hypothetically if we used a global hard money system, like bitcoin, and the government was so sure that spending now would boost the economy in the future. I see no problem in them taking a loan and building some highways.
>The chain reaction continues until all the economy's money is tied up in safe assets, not being spent
If people put their money in savings, isn't the bank still spending it? Investing in things like new businesses? Couldn't the same thing happen regardless of the currency?
That's a real effect, but implicit in your description is an assumption that there's only one standard currency, like dollars or gold.
An alternative is to allow anyone to issue currency. Worgl, Austria got itself out of the Great Depression by doing just that, creating a currency with built-in devaluation (until Austria's central bank shut it down).
We already have multiple bitcoin-style currencies, and it's easy to create more. Some even devalue, much like Worgl's currency. So I don't think this is likely to be a problem, unless somebody is silly enough to make bitcoin the only legal tender.
This is an novel thought, but I don't see how this does much to mitigate agent expectations as regards the valuations of real assets, which is the underlying issue here. Theres also the question of how practicable such a scheme could ever be with global capital markets.
I've done some reading. This idea is about refining the concept of money, to give control to the agents and remove the untrustworthy and incompetent regulatory control. Interesting indeed. However the mechanics of maintaining stability as described by Hayek are largely the same, it's only the controlling party who has changed.
Edit: And back to the point - Bitcoin has no controlling party, it cannot be manipulated in this way at all. It cannot respond to business cycles.
> So what do we do?
(1.) We make safe assets more expensive to lower the risk/reward ratio for commercial activities:
(2.) we make bank holdings very unrewarding (lower interest rates),
(3.) we devalue the money in circulation and provide liquidity in one move (print money),
(4.) and government invests in big infrastructure (liquidity, jobs, momentum, signalling etc).
I clearly see how 3. is not possible with Bitcoins, but how are the others not possible?
It's for this reason I feel that Bitcoin itself is a failed experiment. To the extend that people come to rely on it, we will see increased volatility.
Other crypto-currencies such as http://freico.in/ have seemed to at least tried to address this issue.
Regardless of how the boom/bust cycle originates, an elastic money supply can accommodate those swings so that they do not cause harm to the overall economy.
Bitcoin is the opposite of an elastic money supply, and eventually it becomes a completely static money supply. This is a feature as far as a store of value goes, but a liability when it comes to medium of exchange.
In good times people want more money - a discussion on what they should want is irrelevant, lets stick to the facts - and in bad times people want to protect what they have (aggressively so). Now consider that what makes times good vs bad is not determined by money - it's determined and prolonged by some other shock like an asset misvaluation, the destruction of a massive crop, or some combination of external factors underlying the real or nominal non-money thing.
Let's say it's a rice crop. Those dependent on rice freak out, and push all their money into safe assets, those dependent on those dependent on rice do the same. The chain reaction continues until all the economy's money is tied up in safe assets, not being spent, and everyone is sat at home waiting for it to blow over. If policymakers do not intervene correctly at this point, this situation will become a depression, and much misery will ensue.
So what do we do? We make safe assets more expensive to lower the risk/reward ratio for commercial activities: we make bank holdings very unrewarding (lower interest rates), we devalue the money in circulation and provide liquidity in one move (print money), and government invests in big infrastructure (liquidity, jobs, momentum, signalling etc). All of this is designed to keep things moving and ward off a depression. And it works - this is why we abandoned the gold standard.
So given that Bitcoin means nothing to rice, or most other external factors, and not to the rigidities that exacerbate recessions - how exactly do we deal with this in the described autonomous utopia?
I very much agree that the regulators of currency leave a tremendous amount to be desired, but unfortunately this appears to be one of very few economic problems where decentralisation is not the answer.