Paul Krugman, the famed economist who’s made a career out of being wrong about things, is wrong again. That in itself is no more surprising than the fact that his latest op-ed takes aim at his favorite bête noire – bitcoin. The surprising part is that Krugman has resorted to the same hackneyed arguments he always uses to attack cryptocurrency. It’s an odd decision from such a learned scholar when there are far more lethal lines of attack for a crypto sceptic to take.
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Krugman Swings and Misses
In 1998 Paul Krugman famously predicted: “By 2005 or so, it will become clear that the Internet’s impact on the economy has been no greater than the fax machine’s.” On the rise of communication networks (read social media) he said they’ll fail because: “most people have nothing to say to each other”. Now he is at it again, but with Bitcoin.
“Beware that, when fighting monsters, you yourself do not become a monster,” Nietzsche warned, “for when you gaze long into the abyss, the abyss gazes also into you.” Bitcoin is Paul Krugman’s monster, and despite having swung at it repeatedly over the years, he’s yet to strike a meaningful blow. In an op-ed published in the NYT today, Krugman outlines, for the umpteenth time, why he’s a crypto cynic.
Cynics, for all their doom and gloom, are a welcome antidote to the mindless euphoria, shilling, and moon predictions that pervade the crypto space. Paul Krugman, therefore, is perfectly entitled to take issue with bitcoin. But why has he chosen to attack the very things that make bitcoin so appealing? It’s astonishing how many times someone can be wrong in the course of a single article – and one penned by a Distinguished Professor of Economics, no less. Either Paul Krugman is the world’s subtlest troll or he’s the world’s most benighted professor of economics.
Paul Krugman vs Reality
Here’s a sample of what Paul Krugman has to say during the course of his NYT op-ed:
PK: “Instead of near-frictionless transactions [with fiat], we have high costs of doing business, because transferring a Bitcoin or other cryptocurrency unit requires providing a complete history of past transactions.”
Reality: Er…no it doesn’t. If anyone cares to look up past transactions using a blockchain explorer they’re welcome to, but that has no bearing on doing business with bitcoin, and has zero correlation with the cost of sending bitcoin.
PK: “You’re supposed to be sure that a Bitcoin is real without knowing who issued it, so you need the digital equivalent of biting a gold coin to be sure it’s the real deal.”
Reality: The same could be said of everything digital. Have you ever seen a Facebook in real life? Or squeezed a YouTube video to see if it was ripe? Have you ever fondled a tweet in the palm of your hand or tripped over a computer virus on the way down the stairs? And as for knowing who issued a bitcoin, that is no more relevant than knowing who printed those benjamins in your wallet or that diamond around your beloved’s ring finger. Or, if you want to get really meta, we still don’t know who issued planet earth and all life upon it, and yet here we are, muddling along just fine.
PK: “If speculators were to have a collective moment of doubt, suddenly fearing that Bitcoins were worthless, well, Bitcoins would become worthless.”
Reality: The same argument can be applied to such incongruous things as ancient fossils; Renaissance art; peace treaties; and the earning power of celebrities. In other words, the market pays what the market is willing to pay for an asset, be it a product endorsement from Kim Kardashian or one unit of magical internet money.
If You’re Gonna Pick a Fight with Bitcoin, Go for the Achilles
Time will tell whether Paul Krugman’s position on cryptocurrencies – that they will ultimately collapse and go to zero – is vindicated. In the meantime, if he wants to be taken seriously and to land some painful blows on bitcoin, he would do well to rein in the cheap shots and aim for bitcoin’s achilles instead. There are plenty of criticisms that could be made against crypto; the way it’s primarily benefited the privileged rather than the impoverished; the internal in-fighting over block sizes and arcane politics; the lack of privacy by default with bitcoin transactions; the fact that cryptocurrency is still somewhat unsuited to the tech illiterate. While none of these weaknesses constitutes a fatal flaw in bitcoin’s design, they are all reasonable grounds for attack.
A man of Paul Krugman’s wisdom and reputation ought to be capable of launching much more erudite attacks on bitcoin, but instead he resorts to recycling the same old cliches, while completely missing the astonishing properties that bitcoin provides over regular money, like the ability to transact with anyone without seeking permission from some higher power, and the ability to retain full custody of your wealth, with 100% uptime and 0% asset freezing. Krugman could pen another 100 salty op-eds about bitcoin (and he probably will), but no matter how wrong he’s shown to be, and no matter how high bitcoin climbs, his failure to recognize the second greatest invention of the 21st century won’t be his epitaph. Instead, his obituary shall be determined by his inability to recognize the first:
“By 2005 or so, it will become clear that the Internet’s impact on the economy has been no greater than the fax machine’s.” – Paul Krugman.
What do you make of Paul Krugman’s latest pronouncement on bitcoin? Let us know in the comments section below.
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