Why don’t economists like Bitcoin?

economistsdontlike31 Dec 2013 / The Verge – Nobel prize-winning economist and New York Times columnist Paul Krugman wrote a blog post this weekend with a tantalizing title, “Bitcoin Is Evil,” that has provoked the expected backlash from proponents of the virtual currency.

The headline over-promises, unfortunately — while you could make an argument that Bitcoin nefariously wastes computer power, enables crime, and encourages anarchy, that’s not what Krugman’s saying. (Science fiction writer Charlie Stross’ “Why I want Bitcoin to die in a fire” is more satisfying.) Instead, Krugman attacks Bitcoin’s economic fundamentals for the zillionth time.

Almost any time you see someone from a university praising Bitcoin, that person is from the computer science department. And if you see someone from a university criticizing Bitcoin, that person is likely from the economics department. It’s understandable why technologists gravitate toward a math-based currency. But why don’t economists like Bitcoin?

It’s not that economists are Luddites, as Bitcoin fanatics might say, although no doubt there is an element of bedeutungslosigkeitschmach. Rather, it’s because the odds are objectively against Bitcoin’s long-term success. It’s very difficult to start anything that depends on a lot of people using it, and the challenges proliferate when that thing is a whole entire new type of money. There are countless possible deaths of Bitcoin. The technology fails. Overspeculation causes an irrecoverable crash. The price never settles down. Deflationary pressure annihilates liquidity. A government shuts it down. A new currency makes it obsolete. Users abandon it for some other reason. And so on….. Read more


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