[think33]

Your quote is relevant, but it's a shame he doesn't address the implied claim that bitcoin doesn't "facilitate transactions". And while it is relatively small in that use now, he really needs to make a compelling argument to why it won't work that way in the future.

Further, it's worth pointing out that Krugman endorses a monetary system that makes people poor, via inflating the money supply by printing funds to underwrite policies that benefit, primarily, politicians.

A currency whose supply is fixed, or whose inflation rate is constant and predictable (like bitcoin) is better for facilitating transactions.

When you have a variable (and often high these days- in the US money supply is up over %50 in recent years) rate of inflation, it wrecks havoc with prices and other signals causing malinvestment and worsening the economy.

Something that Krugman, to my knowledge, has never answered for.

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Since I am not allowed to reply to the person below me:

It's quite silly to to say that a limited supply of a currency is bad for it. There is little incentive to hang onto bitcoins. A simple example will prove this to you: The amount of computer you can get for a given amount of money improves dramatically every three years. You could just hold onto your money and buy a much better computer. Thus, relative to computers, the dollar is deflationary.... yet people still buy computers.

This is the kind of argument Krugman gives because he wants to excuse the inflation that has destroyed the dollar, and the economy.... but it is nonsensical. People still buy computers.

[bcoates]

The "computers make the dollar deflationary" argument is terrible.

Deflation is bad because it shifts investment into savings.

Computers are mostly immune to this effect because until a company has enough computer equipment, it's one of the highest ROI things they can spend funds on, and once the need is filled, there is very little additional benefit from buying more. This gigantic cliff in the demand curve overwhelms any marginal benefit to altering the number of computers you buy.

Most of the targets of investment are not like that, and you see a small return on incremental investment after accounting for things like risk. Deflation makes these productive investments impractical because they lose out to just holding the currency.

[pbreit]

Uh, Krugman's whole point is that the capped supply is inherently deflationary so the incentive is to hang on to bitcoins, ie, not the best attribute of a currency.

[bbbhn]

When did the notion that a currency which loses value over time is ideal become orthodoxy?

There are plenty of legitimate arguments that can be constructed against the idea of an inherently inflationary currency too.

[jshen]

"It's quite silly to to say that a limited supply of a currency is bad for it"

I think the field of economics disagrees with you.