For a Nobel laureate, economist Paul Krugman possesses a poor track record. In 1998, Krugman predicted the internet would have as much of an impact on society as the fax machine. A few years later, he urged the Federal Reserve to inflate a housing bubble to replace the dot-com calamity. Then later, in the post-Great Recession recovery, Krugman demanded to “end this depression now!” with even more spending than what then-President Barack Obama had been approving. These examples are only glances into his vast catalog of commentary and analysis. His latest endeavor into dubious observations is bitcoin – and, of course, another misrepresentation of gold.
Separating Fact From Fiction
In the infancy period of cryptocurrencies, governments and central banks asserted that digital currencies were dangerous because terrorists, drug dealers, and other criminals were exploiting bitcoin and its counterparts. Despite the case being made that dollars and euros were utilized for the same purpose, it was acceptable hysteria among the statists. More than a decade later, officials are ringing the alarm bells again – and the state apologists, including Krugman, are employing the same rationale.
Writing in a New York Times blog article titled “Technobabble, Libertarian Derp and Bitcoin,” Krugman contended that bitcoins and other cryptos exist only for illicit activities and speculation.
“Oh, wait. We don’t do any of those things,” Krugman averred when mocking predictions that bitcoin would be used to buy homes and automobiles, make business investments, and pay the bills. For whatever reason, he alluded to mobile payment app Venmo as ostensibly a reasonable alternative. But the 36 stablecoins, cryptos associated with external assets, like the U.S. dollar and gold, will process many more transactions and move more dollars than Venmo and its competitors will in a single month.
That said, consumers are using bitcoin to purchase real estate, make investments, and buy sandwiches. Wall Street is in the process of launching bitcoin exchange-traded funds (ETFs), while Canadian financial markets are already trading bitcoin and Ethereum ETFs. In addition, more companies and organizations are accepting bitcoin than ever before, including Microsoft, AT&T, Subway, Virgin Galactic, the Dallas Mavericks, and many others.
Krugman claims that he has yet to hear the efficacy of blockchain, the technology that supports cryptos. Perhaps he was not paying attention to the “technobabble” from bitcoin enthusiasts. Blockchain speeds up cross-border transactions, improves supply chain management by eliminating fraud with real-time views, enhances digital identity security, and offers decentralized copyright and piracy tracking for content creators.
According to Krugman, bitcoin suffers from “libertarian derp,” a thinking that, he says, invaded gold and supported the opinion that the fiat empire is on the cusp of collapsing. Here is the juicy part:
“One fact that gives even crypto skeptics like me pause is the durability of gold as a highly valued asset. Gold, after all, suffers from pretty much the same problems as Bitcoin. People may think of it as money, but it lacks any attributes of a useful currency: You can’t actually use it to make transactions — try buying a new car with gold ingots — and its purchasing power has been extremely unstable.
“So when John Maynard Keynes called the gold standard a ‘barbarous relic’ way back in 1924, he wasn’t wrong. But the metal’s mystique, and its valuation, live on.”
Second, consumers did not need to carry around physical gold to buy products. There were gold certificates that represented a claim on a specified amount of gold. People did not grab bars, coins, ingots, and nuggets for their purchases. For bitcoin, customers utilize their digital wallets and mobile applications to scoop up everyday items.
Third, despite many of its hiccups, the gold standard is superior to the system the world has today. The recessions and depressions were not prolonged, debt did not sustain the economy, and the American people did not see their purchasing power erode under the gold standard. Moreover, gold maintains value because of its numerous functions, from behaving as a store of value to manufacturing electronics and computers.
Finally, on the topic of Keynes, here is what the legendary economist Friedrich Hayek had to say:
“He was a man with a great many ideas who knew very little about economics. He knew nothing but Marshallian economics. He was completely unaware of what was going on elsewhere. He even knew very little about nineteenth century economic history. His interests were very largely guided by aesthetic appeal, and he hated the nineteenth century and therefore knew very little about it, even about its scientific literature.”
The Bitcoin and Gold Friendship
Krugman and his colleagues on the left have peddled many myths and falsehoods regarding gold. Today, statists are advancing similar mistruths regarding bitcoin and its industry compatriots. Whether it is out of ignorance or irrational dedication to the post-Bretton Woods system, the derponomics descriptor is better applied to economic philosophies emanating from the Federal Reserve, the White House, or modern academia. A gold standard and a bitcoin-derived monetary system would have drawbacks, but a deflationary environment is superior to the inflationary one the world presently endures. Bitcoiners and gold bugs might believe they are adversaries, but as the adage goes, “The enemy of my enemy is my friend.” The System People, as Liberty Nation’s Joe Schaeffer recently coined, will do anything to protect and preserve the status quo, even sacrificing their reputation and credibility.
Read more from Andrew Moran.