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bitcoin

The sparkly bitcoin danced into my peripheral vision a few months ago; it was so intriguing, a currency pulled from nowhere, operating parallel to to those other  big, powerful world currencies, for mysterious purposes (what could sound more alluring than a Silk Road?) Learning the technical minutia was like burrowing into a secret society, mining its shibboleths, much as its members pursued the elusive bitcoin.

But Paul Krugman says it is evil,* and, sadly, I have to believe him. Not only was it used to pay for sordid, as we now know, Silk Road goods, it’s sucking up resources like nobody’s business.  While its boosters paint a romantic picture of a cowboy currency with infinite possibilities, the reality is that bitcoin is essentially conservative. Because only 21 million bitcoin can be mined, it can only increase in value; as more bitcoin flow into circulation, inflation goes from unlikely to impossible, and money can no longer be added to the economy to rescue a country from recession or depression; debts can only grow and can never be diminished by inflation.  So yes, it’s new, but its goal is old: getting money and keeping it.

That said, if it becomes less volatile (in the last 30 days it’s had a low of $455 and a high of $1094) and more widely accepted, it could be still find a niche as an online currency.

*Here‘s Krugman:

,,,(Keynes) went on to point out that the real-life activity of gold mining was a lot like his thought experiment. Gold miners were, after all, going to great lengths to dig cash out of the ground, even though unlimited amounts of cash could be created at essentially no cost with the printing press. And no sooner was gold dug up than much of it was buried again, in places like the gold vault of the Federal Reserve Bank of New York, where hundreds of thousands of gold bars sit, doing nothing in particular.

Keynes would, I think, have been sardonically amused to learn how little has changed in the past three generations. Public spending to fight unemployment is still anathema; miners are still spoiling the landscape to add to idle hoards of gold. (Keynes dubbed the gold standard a “barbarous relic.”) Bitcoin just adds to the joke. Gold, after all, has at least some real uses, e.g., to fill cavities; but now we’re burning up resources to create “virtual gold” that consists of nothing but strings of digits.

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If you want a long view on what went wrong with the economy and how to fix it, this is the most lucid account I’ve read yet.  It’s written by Simon Johnson, former head economist at the IMF:

In a primitive political system, power is transmitted through violence, or the threat of violence: military coups, private militias, and so on. In a less primitive system more typical of emerging markets, power is transmitted via money: bribes, kickbacks, and offshore bank accounts. Although lobbying and campaign contributions certainly play major roles in the American political system, old-fashioned corruption—envelopes stuffed with $100 bills—is probably a sideshow today, Jack Abramoff notwithstanding.

Instead, the American financial industry gained political power by amassing a kind of cultural capital—a belief system.

An impassioned plea from the masses…

With unemployment up, I suppose we’re going to be seeing more of this sort of thing!

Did the unions ruin America?