The vast majority of economists seem to have a serious distaste for Bitcoin. Whenever an economist who has received a Nobel Prize, teaches at an Ivy League school or works at a central bank comments on Bitcoin, they always seem to have something negative to say about the technology. Some of these individuals simply say that Bitcoin has no future whatsoever, while others go as far as to claim it is pure evil.
Paul Krugman, who won the 2008 Nobel Prize in Economics, has ridiculed Bitcoin on multiple occasions. Late last month, fellow Nobel laureate Joseph Stiglitz shared his own disdain for the peer-to-peer digital cash system at the London School of Economics. Former International Monetary Fund Chief Economist Kenneth Rogoff also recently spoke negatively of Bitcoin, saying the U.S. Government should eventually ban the digital money, in addition to cash bills over $10.
There is no shortage of economists who want to see Bitcoin crash and burn.
Paul Krugman Gets It Wrong on Bitcoin
Before getting into the recent comments from Stiglitz and Rogoff, let’s take a closer look at Krugman’s comments about Bitcoin over the years.
In his first post on Bitcoin, Krugman called it evil. “I have to say that I’m still deeply unconvinced,” Krugman wrote in regard to whether Bitcoin could even work.
Three years later, Bitcoin is still working and processing roughly 225,000 transactions per day.
Krugman also didn’t understand that censorship-resistant online transactions are the underpinning value of bitcoin, as Silk Road had illustrated that use case two years prior.
In 2014, Krugman went on to essentially call Bitcoin a scam. In 2015, Krugman seemed to lack a basic understanding of Bitcoin when asked about it at The Genius of Economics. “At this point, bitcoin is not looking too good,” he noted.
According to BitcoinAverage.com, one bitcoin was trading at $279.63 the day Krugman made that statement. The price has more than doubled since then and is now above $600. In fact, bitcoin hit the bottom of its current rally a little under two months before Krugman’s statement.
Of course, Krugman’s analysis wasn’t as blatant or specific as that of Boston’s University’s Mark T. Williams, who infamously predicted a collapse of the bitcoin price to under $10 by the middle of 2014.
Having said that, it’s difficult to find any correct points made by Krugman about Bitcoin up to this point.
Joseph Stiglitz Chimes In
Although Stiglitz hasn’t talked about bitcoin much over the years, he appears to hold a view similar to Krugman’s. “My own view is bitcoins have been greatly exaggerated, and a common medium of exchange and store of value is a basic public function and needs to be regulated,” he recently stated at the London School of Economics. “The main use of bitcoins has been to circumvent tax authorities and regulation and I think the U.S. government did the right thing by trying to shut it down. And I think, effectively, it has done that.”
Stiglitz is correct in that the main use case of Bitcoin is for regulatory arbitrage (outside of its use as a store of value), but his comments regarding a U.S. government shutdown of Bitcoin are unfounded. It’s unclear what Stiglitz was referring to when he said the U.S. government tried to shut down (or effectively shut down) the peer-to-peer digital cash system.
Much like Krugman, Stiglitz reveals his disdain for Bitcoin due to its use in avoiding financial and monetary regulations.
Ken Rogoff Wants Less Cash in the World
Now for Rogoff. This Professor of Economics and Public Policy at Harvard University would like to see Bitcoin banned if it gains further traction. “You have to play whack-a-mole with all these things,” he stated during a recent appearance on CNBC. “There are always going to be these other things: gold coins, uncut diamonds, [and] now bitcoin.”
“[Bitcoin] is at a very low scale now, and you can’t go into the drug store and use it,” Rogoff continued. “They’ll prevent it in the future. They’re, you know, allowing innovation.”
In a recent article for Project Syndicate, Rogoff claimed governments have many tools at their disposal for limiting the use of bitcoin. The one example tool he provided was a ban on the acceptance of bitcoin by banks and retail stores.
Although he doesn’t want to get rid of cash completely, Rogoff would like to gradually remove bills larger than ten dollars from circulation. This, obviously, would have the side effect of making bitcoin an even more attractive offering for censorship-resistant transactions. In fact, a cashless (or in Rogoff’s case, less-cash) society has the potential to create new opportunities for Bitcoin.
Ironically, Rogoff hints at the opportunity a less-cash society could create for Bitcoin in his aforementioned article. “Scaling back paper currency would hardly end crime and tax evasion; but it would force the underground economy to employ riskier and less liquid payment devices,” he wrote.
Why Does This Hatred Exist?
The reasons these economists (and others) hate Bitcoin should be obvious. In their view, it is the government’s job to regulate currency in an effort to provide greater stability for the economy. They also clearly believe the government should be able to decide what is and is not a legitimate or legal transaction.
This point of view is cited in the posts by Krugman, mentioned earlier in this article. In both of those pieces about Bitcoin, Krugman links to a Charlie Stross blog post titled, Why I Want Bitcoin to Die in a Fire.
In the piece, Stross complains about a variety of perceived issues with Bitcoin; including, the 21 million bitcoin cap, the amount of energy burned to secure the network, any possibility of anonymity or privacy within the system, how digital cash has incentivized the creation of new malware, uncensorable markets, and more.
“To editorialize briefly, BitCoin [sic] looks like it was designed as a weapon intended to damage central banking and money issuing banks, with a Libertarian political agenda in mind — to damage states’ ability to collect tax and monitor their citizens financial transactions,” Stross concludes.
In other words, these economists would like the government to be able to regulate the economy and they view Bitcoin as a possible threat to that philosophy.
There are some economists, such as Robert Murphy, who have a more positive view of Bitcoin, but others like Murphy are the exception to the rule.