The last aggressive anti-Bitcoin tirade I recall from Paul Krugman was written on April 14th of this year. It was such an irrational piece of drivel that I decided to respond to his Op-ed nearly paragraph by paragraph in my piece, Paul Krugman Goes on the Attack: Calls Bitcoin “Antisocial,” which I strongly suggest you read if you haven’t already.
What is most interesting about that previous article in hindsight is that he wrote it right after Bitcoin experienced its first major crash of 2013 (there have been two thus far, both after greater than 10-fold increases in the price). While I know Krugman periodically attacks Bitcoin, it’s interesting that this latest Bitcoin hit piece also came directly after the second crash. For those who are holders of Bitcoin, this should be taken as a very positive price signal going forward. Krugman’s prior article was written the day before the abolsute low price for the decline was reached at $50/btc on April 15th. It seems that Krugman becomes particularly comfortable slamming Bitcoin only after a price crash.
In any event, his latest Op-ed is almost as bad as the first one, and so I thought it’d be worthwhile to highlight his ignorance, irrationality and blatant use of statist propaganda once again. So let’s go.
From the New York Times:
This is a tale of three money pits. It’s also a tale of monetary regress — of the strange determination of many people to turn the clock back on centuries of progress.
The first money pit is an actual pit — the Porgera open-pit gold mine in Papua New Guinea, one of the world’s top producers. The mine has a terrible reputation for both human rights abuses (rapes, beatings and killings by security personnel) and environmental damage (vast quantities of potentially toxic tailings dumped into a nearby river). But gold prices, while down from their recent peak, are still three times what they were a decade ago, so dig they must.
The second money pit is a lot stranger: the Bitcoin mine in Reykjanesbaer, Iceland. Bitcoin is a digital currency that has value because … well, it’s hard to say exactly why, but for the time being at least people are willing to buy it because they believe other people will be willing to buy it. It is, by design, a kind of virtual gold. And like gold, it can be mined: you can create new bitcoins, but only by solving very complex mathematical problems that require both a lot of computing power and a lot of electricity to run the computers.
In the three paragraphs above, Krugman in employing a strategy that anti-gold people have used for years if not decades. That it is wasteful and environmentally destructive to mine for gold since it has no real purpose. Interesting. What purpose do diamonds have Paul? Did you buy your wife a diamond ring for your engagement? Did you make sure it wasn’t a blood diamond? Aren’t people likely raped and exploited in the mining of diamonds? I wonder how many articles Krugman has written on the destructiveness of diamond mining, a gem that isn’t even rare to begin with.
I tend to notice a huge hypocrisy from statists that in reality hate gold because it is a competing monetary asset, but then attempt to explain away their disdain using another, more publicly palatable rationale such as environmental destruction. After all, gold should get some credit for having at least has two hugely significant historical purposes. It has been valued for both its beauty and durability as jewelry, as well as for its monetary attributes. Diamonds have one primary purpose only recently established due to extensive marketing efforts (also in drills but you get the point), which is as a status or wealth symbol, so you’d think Krugman and other statists would get far more hot and bothered about blood diamonds than gold; but do they? No, they don’t. The hypocrisy is obvious.
The second thing Krugman does in the latest Op-Ed is to take this faux criticism and then attach it to Bitcoin. See the following paragraph:
Hence the location in Iceland, which has cheap electricity from hydropower and an abundance of cold air to cool those furiously churning machines. Even so, a lot of real resources are being used to create virtual objects with no clear use.
No clear use? Really, Krugman? There is nothing useful about essentially costless transfers of value on a peer-to-peer basis? There is no value to monetary transfers that eliminate expensive and parasitic middlemen? There is no value to using a public key as a way to ask for payment, thus reducing enormous security concerns caused by providing all your private information to hundreds of merchants using credit cards? No value to being able to send millions of dollars across the globe in minutes rather than days? No value to free market currencies competing with state currencies? No value to economic freedom?
There are plenty of valid criticisms of Bitcoin, and a clear and thoughtful expression of those criticisms can only help the marketplace improve free-market crypto currencies in the future. Yet the irrational, ramblings of a statist who clearly hasn’t taken two minutes to objectively analyze Bitcoin is of no use to anyone and a disgrace to a supposedly highbrow newspaper like the New York Times.
His full Op-Ed is here if you have the stomach.
In Liberty,
Mike
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“I ask you to judge me by the enemies I have made.”
― Franklin D. Roosevelt
Mike,
I really like your coverage of Bitcoin! Thanks for your effort!
Krugman and Obama between them have changed the perception of Nobel prizes forever. What was nice seen as a badge of honour for progressive thinking and achievement for humanity is now a pseudo award to provide corporate/banking/military shills a fake air of respectability with the sheeple of the west.
Kissinger tainted it long ago.
“Kissinger received the Nobel Peace Prize in 1973 for his work on the Vietnam Peace Accords, despite having instituted the secret 1969–1975 campaign of bombing against infiltraiting NVA in Cambodia, the alleged U.S. involvement in Operation Condor—a mid-1970s campaign of kidnapping and murder coordinated among the intelligence and security services of Argentina, Bolivia, Brazil, Chile, Paraguay, and Uruguay—as well as the death of French nationals under the Chilean junta.”
http://listverse.com/2007/10/17/top-10-controversial-nobel-peace-prize-winners/
A friend just emailed Kaufman’s latest rant and it is very clear he has had no intention of trying to understand what Bitcoin offers. Whatever respect I had for K (when he courageously debunked Bush Jr’s catastrophic war of choice when it mattered) is now depleted. He’s an obvious mouthpiece and clown.
@ “Even so, a lot of real resources are being used to create virtual objects with no clear use.” See CureCoin http://curecoin.us/, etc. as well as this thread: https://www.facebook.com/SpencerHaleyTech/posts/686536214700902 and the messaging and distributed undeleteable filesystem possibilities there are with the #Bitcoin transaction comments…
Krugman, in addition to being wrong about bitcoin not offering value, also incorrectly represents the cost it takes to inject value to the dollar as a fiat global reserve currency. According to Krugman, all it takes to make dollars is the printing press, well not quite so…
1. The dollar derives its value from the ability of the US to enslave residents and harvest part of their production using the income tax, which must be paid in US$. If all that was needed to prop the dollar was a bunch of Xerox machines, what’s the IRS for? The USG could have just printed its entire budget. Rather, the value of the dollar stems from the fact that people have to pay their taxes with this currency. So, how much does it cost to run the IRS and the related penal system? How much does it cost to comply and/or evade?
2. The dollar wouldn’t be able to carry value if anybody could counterfeit it at will (other than the main counterfeiters at the Fed). How much does it cost to ensure there are no (unauthorized) counterfeiters?
3. The dollar would be worthless if people chose to keep their saving balances in other currencies and in institutions other than in the dollar-backing banking system. That’s why the USG has to stamp out any new entrant currency such as e-gold and now bitcoin, and why it has to require all banking to be FDIC insured. How much does it cost to sabotage other currencies and banking schemes, both in direct government spending and in terms of the lost opportunity to the residents of the US and the world?
4. Perhaps most importantly, the dollar wouldn’t be able to keep its status as a global reserve currency hadn’t the US been willing to go to war, e.g., in the first gulf war, to ensure it’s keeping its hegemonic status. How much did it cost to go these wars? How many people were “raped and abused” as Krugman demagogically says about the gold mines?
I don’t have the stomach for anything that statist shill writes. His credibility has long been lost.
Aside: The diamond scam is really fascinating. They’ve managed to create a mass delusion about that gem, and profit greatly from it.
As for drills, we can make diamonds for that purpose. And frankly we can make them for jewelry as well and hardly anybody can tell the difference, and certainly without close inspection by a skilled eye. Only the propaganda keeps that from spreading widely enough to eat into the cartel. That and maintaining the sentimental notion that one must buy one new from a dealer or it’s somehow cheap and dirty.
Nice post.
One of the strangest parts of the “environmental resource” argument against Bitcoin is that it neglects the physical costs of printing up dollar bills, which are far from negligible. I’ve written about this in response to the April Krugman post at the link below.
http://www.dukechronicle.com/articles/2013/04/17/whats-wrong-bitcoin
From the information I was able to gather, it seems that the resource cost of printing paper bills–$2,323,288 per day in 2008–dwarfs the daily cost of the energy required to mine Bitcoins, which was quoted at $147 grand per day last year. Admittedly, the cost of mining Bitcoins is bound to increase in the future, but it seems unfair to neglect the costs of paper money when criticizing Bitcoin on this basis. (I suspect that defenders of paper money would argue that under a gold-based system, you’d have both the costs of gold mining as well as the cost of printing up all of the paper receipts that would be backed by the gold, but I’m not sure how this criticism would apply to Bitcoin).
Of course, a lot of this also begs the question. Krugman and other critics view Bitcoin as wasteful in comparison with the dollar, primarily because they do not view fiat money manipulation as a problem. To those who do view it as a problem (many of whom also endorse Bitcoin), the idea that Bitcoin is somehow more wasteful than the misallocation of resources that accompanies interest rate suppression probably seems absurd.
Lastly, it’s also worth noting that the volatility of fiat money drives investment in gold, such that avoiding gold standards and Bitcoins in “official” systems probably does little to avert those resource costs at the end of the day, anyway. So, unless you’re willing to actually prohibit gold and Bitcoins, the resource costs may just be a fact of life.
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2208041