Nobel Prize winning US economist Paul Krugman finds the current “enthusiasm for cryptocurrency” baffling, and fears widespread use would have the effect of regressing economics by 300 years.
Paul Krugman is no fan of cryptocurrency. One could go as far as to say he intensely dislikes everything it stands for. Krugman’s stance is hardly personal, nor is it based on ignorance ( a la Warren Buffet), and as one of America’s foremost economists, Krugman has probably forgotten more about the science of money than the vast majority of people working in the crypto sector are ever going to know. Krugman hates cryptocurrency because he sees it as regressive, potentially destabilizing to economies, and a godsend to criminals.
Bitcoin Dragging Economics Back To The Dark Ages
Krugman points out that throughout the annals of history, money has constantly evolved toward frictionless transactions. The result is the system we have today, focused on debit and credit cards, plus other digital transaction methods.
Bitcoin however, represents the biggest form of regression in 300 years of economic evolution. This is because it brings friction back into the monetary ecosystem, and that friction is manifested in the costs associated with mining transactions and validating the blockchain history.
Here’s what Krugman has to say on the subject:
“Set against this history [of money], the enthusiasm for cryptocurrencies seems very odd, because it goes exactly in the opposite of the long-run trend…In other words, cryptocurrency enthusiasts are effectively celebrating the use of cutting-edge technology to set the monetary system back 300 years. Why would you want to do that? What problem does it solve? I have yet to see a clear answer to that question.”
Who Is Paul Krugman?
65-year old Paul Robin Krugman is an American economist who is the current Distinguished Professor of Economics at the Graduate Center of the City University of New York. Krugman’s grandparents were Belarussian Jews who emigrated to the US in 1922.
Krugman studied at both Yale and the London School of Economics. In 2000, he joined Princeton University as Professor of Economics and International Affairs. He is recognized as one of the greatest authorities on economics in the world. He has published 27 books on the subject, writes a weekly column in the New York Post, and in 2008 he was awarded the Nobel Prize in Economics, a reward that comes with a cheque for $1.4 million.
Cryptocurrencies Have “No Tether To Reality”
Krugman argues that one of the key advantages traditional fiat currency has over Bitcoin is their value is “tethered” to the nation it is affiliated with, by virtue of that nation’s wealth, or simply the say-so of its government. He then says:
“Cryptocurrencies, by contrast, have no backstop, no tether to reality. Their value depends entirely on self-fulfilling expectations – which means that total collapse is a real possibility. If speculators were to have a collective moment of doubt, suddenly fearing that Bitcoins were worthless, well, Bitcoins would become worthless.”