When I read Paul Krugman’s article entitled “The Antisocial Network,” I was struck by his outright claim that “green pieces of paper are doing fine.”
Despite the fact that people like to gang up on Krugman, and my vague suspicion that he is some kind of economic anti-matter that thrives on press rebuttals, I have to take issue with his claim, and would like to flip his logic.
“Bitcoin is thriving, therefor green pieces of paper are NOT doing fine.”
As much as I find Bitcoin incredible from a technological and mathematical standpoint, it is not lost on me that a substantial leap of faith is required to put your trust, and your money, in a piece of open-source software and a few thousand crypto-geeks heating their houses with GPUs.
I’ll take the bait. Krugman, you are correct. Bitcoin is bonkers. It is so outrageous and convoluted a system, that people would have to be crazy to adopt it.
Or, perhaps there is another explanation. If something so bananas can gain such widespread popularity (objectively, the user base is still small, but the trend is strongly in favor of higher adoption), then something must be wrong with the system it is trying to replace: The more cockamamie the Bitcoin, the more fragile the US dollar.
According to Krugman’s conclusion, we have economic problems, but not currency problems. But doesn’t the Federal Reserve enact monetary policy precisely because it affects economic health? If they would accept accolades for prudent management of the money supply, would they also accept blame for poor outcomes?
I would argue that the currency and the economy are inextricably intertwined, and that even though financial deterioration may not manifest itself in currency value fluctuations today, but rather in high unemployment and over-leveraged balance sheets, that this won’t always be the case.
People disagree on whether we’re in a recovery or the early stages of another financial crisis. But whatever side of the camp you are on, you should at least admit that if green pieces of paper were doing fine, then Bitcoin wouldn’t stand a chance.