In a recent NYT article, Paul Krugman presumes to speak authoritatively on Bitcoin as a way to reassure his fan base that all is well in the world of fiat money & unconventional monetary policies.
In searching the article for a germ of wisdom or grain of truth, I had to take one comment out of context to grant him this possibility:
“…governments are vastly abusing their power to print money”
Alas, he insists that this is not the case despite steady erosion of purchasing power of most currency units & an ongoing currency war.
Consider another comment:
“…paper currencies have value because they’re backed by the power of the state, which defines them as legal tender and accepts them as payment for taxes”
But this is exactly backwards! Paper currencies back up the power of the state & are supported by “legal tender” laws (without which they might be refused).
As for Bitcoin, he first tries to discredit the whole project by suggesting that they are widely used for illicit payments for dubious activities. There is no attempt to say what proportions of Bitcoin transactions are conducted as such. If there is a moral point, then paper currencies should be discredited on these grounds since most of all illicit transactions for dubious activities involve the use of dollars or euros.
But Mister Krugman never lets facts get into the way of a good story.
To deflect complaints against paper currencies as fiat money, Krugman declares that the value of Bitcoins are just like that of any (fiat) paper currency & that the “belief that other people will accept them as payment”.
And to placate those that might consider that actions by central bankers might have put us all onto thin ice, Krugman assures his readers:
“Federal Reserve and other central banks have greatly expanded their balance sheets — but they’ve done that explicitly as a temporary measure in response to economic crisis”
Well, to paraphrase Milton Friedman, “nothing is so permanent as a ‘temporary’ government program”.
The permanence of monetary misbehavior of central bankers should be painfully in this case. As it is, not one central bankers has even tried to present an “exit plan” whereby they end their mad monetary experiments.
indeed, they cannot offer an exit plan since that involves raising interest rates that would both curb the capacities of governments to issue debt, halt banks ability to make obscene profits & out-sized bonuses.
But higher interest rates would displease the 2 primary beneficiaries of artificially-cheap credit & monetary pumping, bankers & governments.
As such, central bankers cannot imagine taking the step to let interest rates rise. At least, not voluntarily. They will do so only in the face of imminent collapse (or, more likely, just after).
And then he offers the assurance that only good can come of all the monetary pumping. (Apparently, Krugman cannot imagine any downside to it all…?)
“Ben Bernanke’s promises that his actions wouldn’t be inflationary have been vindicated”
But this is symptomatic of the misguided concern over the eventual impact of current monetary policy on price indices. It turns out that the big problem is the distorted production structure that is destroying wealth as we speak, but that will only become evident when “the tide goes out”.
Any future economic collapse will not be due to rising consumer prices. The real danger is from collapsing business models that were allowed to emerge & depend upon artificially-cheap credit to survive.
Funny thing is, even Krugman would oppose central planning & fixing price of an important commodity like steel or oil or food or almost anything else. But somehow when it comes to MONETARY central planning whereby interest rates are fixed, arguably the most important single price in any modern economy; HEY! no problem!!!
Well, there is one other statement that contains a great deal of truth, but Krugman does not really grasp the import of what he cites:
“Money is, as Paul Samuelson once declared, a “social contrivance,” not something that stands outside society”
This is a stronger claim that either Krugman or Samuelson understand. Money, like language, evolved out of human actions as ways to solve complex social interactions.
As such, no government officials invented them or declared them necessary. Therefore, interference by experts or elites (as with Academie Francaise or central bankers) will undermine the social value that emerged out of mutual, voluntary consent. The French language is probably less robust due to external controls over its spontaneous development & paper currencies constantly lose purchasing power due to political decisions (despite the supposed “independence” of central banks).
In all events, a “legal tender” law is hardly a “social contrivance” if we take to refer to an outcome of mutual & voluntary agreements. Instead, legal tender laws involve are based on the force & power of government authorities.
And in conclusion, Krugman asks about Bitcoin:
“do we need a new form of money? I guess you could make that case if the money we actually have were misbehaving. But it isn’t. We have huge economic problems, but green pieces of paper are doing fine — and we should let them alone”
Doing just fine!?! This comment is right out of the mouth of Alfred E. Neuman in Mad Magazine: “What! Me Worry?”
Apparently, Krugman sees no problems since he is blinded by his religious devotion to the Keynesian church.