Tag Archives: Krugman

Crypto-Currency! File Under WTF?

Bless Paul Krugman. His is the first explanation I can understand. 

I have been reading about Bitcoin for a couple of years–about speculation in this “crypto-currency,” about competitors who are equally “crypto,” about people who are willing to be paid for goods and/or services in this new medium.

The problem is, I can’t get my head around it.

I know that U.S. currency was originally backed by gold, and is currently backed by the full faith and credit of the United States government. (Our stability led lots of countries to “park” their assets in the U.S.–I wonder how long it will take Trump and his band of Keystone Kops to erode their trust…) I have no idea what backs Bitcoin, so I was interested in the linked Krugman column.

If you’ve been living in a cave and haven’t heard of Bitcoin, it’s the biggest, best-known example of a “cryptocurrency”: an asset that has no physical existence, consisting of nothing but a digital record stored on computers. What makes cryptocurrencies different from ordinary bank accounts, which are also nothing but digital records, is that they don’t reside in the servers of any particular financial institution. Instead, a Bitcoin’s existence is documented by records distributed in many places.

And your ownership isn’t verified by proving (and hence revealing) your identity. Instead, ownership of a Bitcoin is verified by possession of a secret password, which — using techniques derived from cryptography, the art of writing or solving codes — lets you access that virtual coin without revealing any information you don’t choose to.

It’s a nifty trick. But what is it good for?

My question exactly! (This is one of those times–multiplying in number–when I come face-to-face with the fact that the world has passed me by. Technology has eclipsed my ability to understand it…)

In principle, you can use Bitcoin to pay for things electronically. But you can use debit cards, PayPal, Venmo, etc. to do that, too — and Bitcoin turns out to be a clunky, slow, costly means of payment. In fact, even Bitcoin conferences sometimes refuse to accept Bitcoins from attendees. There’s really no reason to use Bitcoin in transactions — unless you don’t want anyone to see either what you’re buying or what you’re selling, which is why much actual Bitcoin use seems to involve drugs, sex and other black-market goods.

So Bitcoins aren’t really digital cash. What they are, sort of, is the digital equivalent of $100 bills.

Krugman explains that equivalency: neither Bitcoins nor $100 bills are used in most ordinary transactions. But hundred dollar bills are evidently popular with thieves, drug dealers and tax evaders. Unlike hundred-dollar bills, which are backed by the U.S. government, Bitcoins have no intrinsic value. Its “value” is whatever the parties to the transaction are willing to assign to it.

Combine that lack of a tether to reality with the very limited extent to which Bitcoin is used for anything, and you have an asset whose price is almost purely speculative, and hence incredibly volatile. Bitcoins lost about 40 percent of their value over the past six weeks; if Bitcoin were an actual currency, that would be the equivalent of a roughly 8,000 percent annual inflation rate.

Oh, and Bitcoin’s untethered nature also makes it highly susceptible to market manipulation. Back in 2013 fraudulent activities by a single trader appear to have caused a sevenfold increase in Bitcoin’s price. Who’s driving the price now? Nobody knows. Some observers think North Korea may be involved.

But what about the fact that those who did buy Bitcoin early have made huge amounts of money? Well, people who invested with Bernie Madoff also made lots of money, or at least seemed to, for a long time.

Krugman quotes a currency expert who describes Bitcoin as a “naturally occurring” Ponzi scheme.

I’m still pretty hazy about what Bitcoins and their competitors are, or why it takes so much electricity to “mine” them.  I’m clearly not cut out for the “brave new world” of digital money–or new and improved skullduggery.

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Magic Astericks

Paul Krugman shines a light on the antics of the not-ready-for-prime-time party:

By now it’s a Republican Party tradition: Every year the party produces a budget that allegedly slashes deficits, but which turns out to contain a trillion-dollar “magic asterisk” — a line that promises huge spending cuts and/or revenue increases, but without explaining where the money is supposed to come from.

But the just-released budgets from the House and Senate majorities break new ground. Each contains not one but two trillion-dollar magic asterisks: one on spending, one on revenue. And that’s actually an understatement. If either budget were to become law, it would leave the federal government several trillion dollars deeper in debt than claimed, and that’s just in the first decade.

Krugman details the spending cuts that are specified–“savage” cuts in food stamps, Medicare and other programs upon which millions of Americans have come to rely. And of course, repeal of the hated “Obamacare.” Read through his column, and you have a picture of the priorities of people who have lost touch not just with reality, but with decency.

And that brings Krugman to his most important point, and one we should all ponder–especially those of us who called the GOP home before the party became a collection of radicalized, resentful inhabitants of an alternate reality.

It’s very important to realize that this isn’t normal political behavior. The George W. Bush administration was no slouch when it came to deceptive presentation of tax plans, but it was never this blatant. And the Obama administration has been remarkably scrupulous in its fiscal pronouncements.

O.K., I can already hear the snickering, but it’s the simple truth. Remember all the ridicule heaped on the spending projections in the Affordable Care Act? Actual spending is coming in well below expectations, and the Congressional Budget Office has marked its forecast for the next decade down by 20 percent. Remember the jeering when President Obama declared that he would cut the deficit in half by the end of his first term? Well, a sluggish economy delayed things, but only by a year. The deficit in calendar 2013 was less than half its 2009 level, and it has continued to fall.

Krugman can be fact-checked; his numbers are accurate. But as a scroll through Facebook or the comments section of your favorite news source will confirm, facts don’t matter. Evidence doesn’t matter.

Crazy rules. And it’s terrifying, because you can’t talk to crazy.

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Faith-Based Realities

A comment to yesterday’s blog on “fact rejection” referenced a similar meditation by Paul Krugman. Krugman, as one might expect, focused upon the phenomenon in the context of economic dogma versus performance.

You might wonder why monetary theory gets treated like evolution or climate change. Isn’t the question of how to manage the money supply a technical issue, not a matter of theological doctrine?

Can anything reverse this descent into dogma? A few conservative intellectuals have been trying to persuade their movement to embrace monetary activism, but they’re ever more marginalized. And that’s just what Mr. Nyhan’s article would lead us to expect. When faith — including faith-based economics — meets evidence, evidence doesn’t stand a chance.

Seven years ago, I wrote a book titled God and Country: America in Red and Blue (still available through Amazon if anyone is interested), in which I explored–among other things–the effect of America’s early Calvinism on present-day social welfare and poverty policies.

My research confirmed that several of our ostensibly secular policy preferences have decidedly religious roots. From poverty to foreign policy to the environment, religious world views are far more potent than most of us realize.

Our everyday experiences with “reality rejection” tend to reinforce the prevalence of the phenomenon.  At least mine do.

Several years ago, I was the guest on a call-in radio program in Charleston, South Carolina, and the discussion turned to what was then a hot issue: posting the Ten Commandments in public school classrooms. A caller who favored doing so “quoted” James Madison to the effect that the Bill of Rights could only be entrusted to people who lived by the Ten Commandments. The quote had been previously circulated by an extremist organization and thoroughly discredited; Madison had not only never said anything of the sort, but the sentiment was contrary to everything he did say.

I politely informed the caller that his information was incorrect, and referred him to a Madison scholar for verification, whereupon he yelled “Well, I think it’s true!” and hung up.

Those of us who try to live in the “reality-based community” have our jobs cut out for us.

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Choosing our Authorities

I was going to blog about the Reinhart-Rogoff thesis this morning, but Paul Krugman not only beat me to it, he (unsurprisingly) said it better.

What–you aren’t familiar with Reinhart-Rogoff? The term is shorthand for a paper circulated by two Harvard economists, Reinhart and Rogoff, in 2010. (It evidently wasn’t even a peer reviewed article–just a working paper.) The paper purported “to identify a critical “threshold,” a tipping point, for government indebtedness. Once debt exceeds 90 percent of gross domestic product, they claimed, economic growth drops off sharply.”

The paper was immediately seized on by proponents of austerity, despite the fact that other economists criticized the methodology, and still others tried but couldn’t replicate the findings. It became the basis of policy decisions throughout Europe. It was a justification for Paul Ryan’s budget. And then, when the authors finally shared their calculations, it turned out that a coding error–in lay language, a mistake in their use of the Excel computer program–invalidated their results.

There is a moral to this story, and it has nothing to do with economics, or the importance of peer review, or the tendency of a Harvard pedigree to lend unearned credibility to a scholarly product. This fiasco is another example of a growing phenomenon: ideologically-driven choices of reality. In today’s America, too many of us read everything selectively; we comb the news for evidence that supports our pre-existing beliefs. We read the bible and the Constitution selectively, conveniently ignoring the parts that conflict with our worldviews. We dismiss evidence that confuses us. Ambiguity and complexity become enemies.

The problem is, the clarity we achieve with our chosen authorities often conflicts with messy, ambiguous reality. And that makes matters worse.

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Bartlett’s Oddyssey

Bruce Bartlett has written a rather sad article in the American Conservative , detailing his estrangement from the conservative movement–or at least, the folks who have current ownership of that title. He begins by listing his past service to the Republican party and conservative causes, service that should have earned him the right to dissent from orthodoxy without being shunned.

Of course, it didn’t. When your economic and political beliefs take on the character of religious dogma–when they become matters of faith rather than opinions grounded in experience and evidence–dissent becomes blasphemy.

As Bartlett describes his journey into the “reality-based world” (his own description), he makes some discoveries that startle him.

For the record, no one has been more correct in his analysis and prescriptions for the economy’s problems than Paul Krugman. The blind hatred for him on the right simply pushed me further away from my old allies and comrades.

The final line for me to cross in complete alienation from the right was my recognition that Obama is not a leftist. In fact, he’s barely a liberal—and only because the political spectrum has moved so far to the right that moderate Republicans from the past are now considered hardcore leftists by right-wing standards today. Viewed in historical context, I see Obama as actually being on the center-right.

Of course, Bartlett is correct about Obama’s centrism. It drives the left wing of the Democratic party nuts.

When I read “The Audacity of Hope,” I remarked that Obama’s philosophy as described in that volume was virtually identical to that of a moderate Republican–at least, as moderate Republicans defined ourselves in the 1980s. His positions were pretty much the positions I’d espoused in my run for Congress back then, when I was actually considered part of the conservative wing of the party.

When I left the GOP in 2000, the party had already left me. It had shifted dramatically to the Right, and it has continued its radical transformation. That so many thoughtful people fail to recognize how different today’s GOP is from the party of Goldwater and even Reagan is something of a statement on our very human tendency to resist recognition of change.

It’s like looking in the mirror every morning for years without noticing that your formerly black hair has been slowly turning  grey, that your once-rosy complexion is becoming a bit more wrinkled each day…and then somehow, suddenly and without warning, actually seeing that you’ve aged thirty years. When did that happen?

Bartlett looked in the mirror. It’s a sad article, but well worth the read.

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