Bitcoin Is Evil
by Paul Krugman
December 28, 2013
New York Times Blog
Itís always important, and always hard, to distinguish positive
economics - how things work - from normative economics - how things
should be. Indeed, on many of the macro issues Iíve written about it has
been obvious that large numbers of economists canít bring themselves to
make that distinction.
They dislike activist government on
political grounds, and this leads them to make really bad arguments
about why fiscal stimulus canít work and monetary stimulus will be
I donít, by the way, think that this effect
is symmetric: although people like Robert Lucas were quick to
accuse people like Christy Romer of fabricating macro arguments to
support a big-government agenda, this didnít actually happen.
But I come now to talk not about macro but about money - specifically,
about Bitcoin and all that.
So far almost all of the Bitcoin discussion has been positive economics
- can this actually work? And I have to say that Iím still deeply
To be successful, money must be both a
medium of exchange and a reasonably stable store of value. And it
remains completely unclear why BitCoin should be a stable store of
puts it clearly:
Underpinning the value of gold is that
if all else fails you can use it to make pretty things.
Underpinning the value of the dollar is
a combination of (a) the fact that you can use them to pay your
taxes to the U.S. government, and (b) that the Federal Reserve is a
potential dollar sink and has promised to buy them back and
extinguish them if their real value starts to sink at (much) more
than 2%/year (yes, I know).
Placing a ceiling on the value of gold is mining technology, and the
prospect that if its price gets out of whack for long on the upside
a great deal more of it will be created. Placing a ceiling on the
value of the dollar is the Federal Reserveís role as actual dollar
source, and its commitment not to allow deflation to happen.
Placing a ceiling on the value of bitcoins is computer technology
and the form of the hash functionÖ until the limit of 21 million
bitcoins is reached.
Placing a floor on the value of bitcoins
isÖ what, exactly?
I have had and am continuing to have a
dialogue with smart technologists who are very high on BitCoin - but
when I try to get them to explain to me why BitCoin is a reliable store
of value, they always seem to come back with explanations about how itís
a terrific medium of exchange.
Even if I buy this (which I donít,
entirely), it doesnít solve my problem. And I havenít been able to get
my correspondents to recognize that these are different questions.
But as I said, this is a positive discussion. What about the normative
Well, you should read
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 - to damage states
ability to collect tax and monitor their citizens financial
Go read the whole thing.
Stross doesnít like that agenda, and neither do I; but I am trying not
to let that tilt my positive analysis of BitCoin one way or the other.
One suspects, however, that many BitCoin
enthusiasts are, in fact, enthusiastic because, as Stross says,
ďit pushes the same buttons as their
So letís talk both about whether BitCoin is
a bubble and whether itís a good thing - in part to make sure that we
donít confuse these questions with each other.