Paul Krugman on natural Ponzi schemes; The WSJ on the MicroStrategy cult; Carl R. Danner on regulation, and John Cochrane's comments; Joseph Addington on Milei's miracle
Krugman is completely blind as to why anyone would buy crypto. He thinks of it as something with no value that is an object of irrational speculation. Here are some basic economics for that Nobel Prize winner: An essential characteristic of money, which makes it suitable as a means of exchange and a store of value, is scarcity, or limited supply. We live in an era of pure fiat money which clearly doesn't meet that test as governments print money to finance out of control deficits. In contrast, the total supply of Bitcoin is limited. I was recently in Argentina and spoke with locals who told me that their practice was to immediately convert any payment received to dollars on the informal market, or to buy crypto (Bitcoin). They said yes, Bitcoin was quite volatile, but the Argentine Peso only ever went in one direction; down. (Though Milei has succeeded in reducing the rate of decline). Fiat currency such as the dollar are a means for the government surreptitiously to expropriate its citizenry through inflation. Keynes wrote, “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.” Krugman and his fellow Leftists either favor or are indifferent to this.
The Klassic Klingisms are so great, it's a shame they are only accessible through a link to the old ASK blog, with it's pale, barely readable typeface. They should be blazoned on banners, and hung in schoolrooms - or at the very minimum, be available online in a decent-sized, serif font.
“…retail electricity prices are staggeringly high for these California utilities…”
I bought a home in semi-rural Arizona for future retirement / etc. I also have a home in California. I couldn’t believe it when I received our first electricity bill in AZ. Literally <1/4 of the price. My friends still don’t believe me.
Another point is that energy production and use are a good proxy for human flourishing. California decidedly not flourishing.
"The third is mandated transfers between customers for an environmental initiative, where some pay higher utility bills so that others can more easily purchase rooftop solar systems."
It's my understanding that California goes further but my rooftop system in Illinois is grandfathered into a benefit where I don't pay delivery fees to get credits at retail rate for my excess power generation which I can use later at one time one value. I don't feel bad about this for two reasons. The power company keeps any excess for the year. I'm generating excess during their peak load on hot summer days. In the end I might be saving them money.
Money is a belief system. If everyone keeps believing it retains value. You know how humans are with their beliefs. I’ll stick with America. Everyone else can believe what they want and I hope it works out for them but I see too many portents to have a positive long view on crypto.
Comments made from my perch behind the Red Curtain in Wuhan. For the US doubters, read what the government, meaning Xi, has to say about the Chinese economists commenting on reality. In short…Stop describing what any fool can easily see….
Krugman should short sell whatever he thinks is overvalued and or take advantage of market inefficiencies if he thinks there are many. This is what many traders do for a living…they put capital where their mouth is. The only issue is to stay solvent till you are right.
In my opinion, economists have done an execrable job of studying the proper balance between government and the private sector. In large measure, I think that is because economists who have been skeptical of government (Friedman, Hayek, Buchanan) have been written out of the textbooks. Neo-Keynesians tend to look at market flaws and call on the government to correct them. But they never consider whether these corrective measures are effective or cause more harm than good.
By the way, on the subject of Ponzi's, did anyone notice that 95% of the losses from Bernie Madoff have been recovered? Taking the time value of money into account that's still a big loss but better than one would have expected.
the cost of mandates are good or bad depending on the benefits
only cost of actual cause should be imposed.
The cross subsidy of rooftop solar would be almost unobjectionable if the amount of the subsidy did approximate the social cost of the CO2 emission avoided. Net metering breaks that link.
Weird, internet commenters seem to think that the California PUC assigned liability for e.g. the Paradise fire to PGE so that it could shield PGE from the consequences.
And it seems that Cali has heard the libertarian line – er, woke line - about the “inequity” of solar and is moving to make it less attractive. Solar is one of those things we can’t have apparently, with mass immigration and the accompanying societal stratification.
Libertarian should love woke. Woke always trumps environment. I’m not sure why there’s a need to pretend otherwise. Hopefully the coming years, bring joy, particularly the joy of visiting some beauty spot or other that perhaps meant something to you, and finding it full of trash, and knowing - pleasure stealing over you - that you really have won in all important ways.
Ponzi schemes, like socialism itself, fail when the spenders “run out of other people’s money”. I’m glad Arnold voted for Milei, for symbolic reasons, and glad Milei is referring to most of govt as parasites. Arnold’s use of parasites vs producers is part of what might become a Current Thing, if Trump or Vance or Musk start referring to their target for cuts as parasites. Tho that wording is problematic, even if true, because Hitler used it effectively against Jews.
But asset prices of real assets depend on printed money, not already existing money. We never run out of printed money, tho it might become valueless. I imagine an end to govt borrowing, replaced by actual M1 printing, no new “risk free” bonds, but $1 trillion new dollars, spread over 100 million households, all families get $10,000 in cash. We don’t see hyperinflation, because there’s plenty of food & clothes, we see higher asset prices. Houses, stocks, prolly not bonds so much, crypto & … get rich Ponzi schemes.
Higher US deficits are now feeding stock & asset prices, not higher CPI prices. Real inflation is based on what is bought, not merely CPI products. I would like to know Arnold’s opinion on what the inflation was in 2020,2021,2022,2023, & est. 2024.
Also, there is a theory that trillion dollar increases to the national debt are unsustainable. I claim, based on Japan, that the US can approach 250% debt/GNP without hyperinflation. Yet I also prefer balanced budgets and no national debts, more for limited & responsible govt reasons. It does seem true, and bad, that America is addicted to govt spending, politically.
Sometimes there are aspects of the truth I don’t like.
The inflation successfully avoided a depression, tho a short, sharp recession. It’s hard to separate out the supply chain problems at the ports and the increased gas costs plus new regulation overhead from M2 growth inflation as seen in prices of … food, fuel, clothes.
Was 2023 & 2024 inflation due to Covid checks to individuals? Wasn’t a lot more govt cash spent on programs like new EV chargers & rural broadband & homelessness, all without much actual production? My claim is that such billions would have been better not spent, or sent directly to households.
Now I’m wondering what the median $60,000 pre-tax income is spent on and what proportion is spent on CPI included stuff.
I've heard some absurd things about inflation, money supply, etc. In the case of what you just wrote, I have no idea if that's what I'm reading, your explanation is too cryptic for me to decipher, or it's completely over my head.
Krugman is completely blind as to why anyone would buy crypto. He thinks of it as something with no value that is an object of irrational speculation. Here are some basic economics for that Nobel Prize winner: An essential characteristic of money, which makes it suitable as a means of exchange and a store of value, is scarcity, or limited supply. We live in an era of pure fiat money which clearly doesn't meet that test as governments print money to finance out of control deficits. In contrast, the total supply of Bitcoin is limited. I was recently in Argentina and spoke with locals who told me that their practice was to immediately convert any payment received to dollars on the informal market, or to buy crypto (Bitcoin). They said yes, Bitcoin was quite volatile, but the Argentine Peso only ever went in one direction; down. (Though Milei has succeeded in reducing the rate of decline). Fiat currency such as the dollar are a means for the government surreptitiously to expropriate its citizenry through inflation. Keynes wrote, “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.” Krugman and his fellow Leftists either favor or are indifferent to this.
The Klassic Klingisms are so great, it's a shame they are only accessible through a link to the old ASK blog, with it's pale, barely readable typeface. They should be blazoned on banners, and hung in schoolrooms - or at the very minimum, be available online in a decent-sized, serif font.
Huh. Font looks perfectly readable to me. Arial?
The Nikkei peaked about [35] years ago. About a year ago it finally returned to that level and is ~10% above that now.
At best I partly understand why that happened but it seems some reasons are unlikely to apply in the US. Maybe we have other vulnerabilities though.
35 years, not 25.
“…retail electricity prices are staggeringly high for these California utilities…”
I bought a home in semi-rural Arizona for future retirement / etc. I also have a home in California. I couldn’t believe it when I received our first electricity bill in AZ. Literally <1/4 of the price. My friends still don’t believe me.
Another point is that energy production and use are a good proxy for human flourishing. California decidedly not flourishing.
"The third is mandated transfers between customers for an environmental initiative, where some pay higher utility bills so that others can more easily purchase rooftop solar systems."
It's my understanding that California goes further but my rooftop system in Illinois is grandfathered into a benefit where I don't pay delivery fees to get credits at retail rate for my excess power generation which I can use later at one time one value. I don't feel bad about this for two reasons. The power company keeps any excess for the year. I'm generating excess during their peak load on hot summer days. In the end I might be saving them money.
Great piece today. Thanks much.
Money is a belief system. If everyone keeps believing it retains value. You know how humans are with their beliefs. I’ll stick with America. Everyone else can believe what they want and I hope it works out for them but I see too many portents to have a positive long view on crypto.
Comments made from my perch behind the Red Curtain in Wuhan. For the US doubters, read what the government, meaning Xi, has to say about the Chinese economists commenting on reality. In short…Stop describing what any fool can easily see….
Krugman should short sell whatever he thinks is overvalued and or take advantage of market inefficiencies if he thinks there are many. This is what many traders do for a living…they put capital where their mouth is. The only issue is to stay solvent till you are right.
In my opinion, economists have done an execrable job of studying the proper balance between government and the private sector. In large measure, I think that is because economists who have been skeptical of government (Friedman, Hayek, Buchanan) have been written out of the textbooks. Neo-Keynesians tend to look at market flaws and call on the government to correct them. But they never consider whether these corrective measures are effective or cause more harm than good.
By the way, on the subject of Ponzi's, did anyone notice that 95% of the losses from Bernie Madoff have been recovered? Taking the time value of money into account that's still a big loss but better than one would have expected.
Milei for US president!
Danner:
the cost of mandates are good or bad depending on the benefits
only cost of actual cause should be imposed.
The cross subsidy of rooftop solar would be almost unobjectionable if the amount of the subsidy did approximate the social cost of the CO2 emission avoided. Net metering breaks that link.
Weird, internet commenters seem to think that the California PUC assigned liability for e.g. the Paradise fire to PGE so that it could shield PGE from the consequences.
And it seems that Cali has heard the libertarian line – er, woke line - about the “inequity” of solar and is moving to make it less attractive. Solar is one of those things we can’t have apparently, with mass immigration and the accompanying societal stratification.
Libertarian should love woke. Woke always trumps environment. I’m not sure why there’s a need to pretend otherwise. Hopefully the coming years, bring joy, particularly the joy of visiting some beauty spot or other that perhaps meant something to you, and finding it full of trash, and knowing - pleasure stealing over you - that you really have won in all important ways.
Why exactly “Libertarian should love woke”?? Does woke somehow result in less government I position on liberty/freedom?
Ponzi schemes, like socialism itself, fail when the spenders “run out of other people’s money”. I’m glad Arnold voted for Milei, for symbolic reasons, and glad Milei is referring to most of govt as parasites. Arnold’s use of parasites vs producers is part of what might become a Current Thing, if Trump or Vance or Musk start referring to their target for cuts as parasites. Tho that wording is problematic, even if true, because Hitler used it effectively against Jews.
But asset prices of real assets depend on printed money, not already existing money. We never run out of printed money, tho it might become valueless. I imagine an end to govt borrowing, replaced by actual M1 printing, no new “risk free” bonds, but $1 trillion new dollars, spread over 100 million households, all families get $10,000 in cash. We don’t see hyperinflation, because there’s plenty of food & clothes, we see higher asset prices. Houses, stocks, prolly not bonds so much, crypto & … get rich Ponzi schemes.
Higher US deficits are now feeding stock & asset prices, not higher CPI prices. Real inflation is based on what is bought, not merely CPI products. I would like to know Arnold’s opinion on what the inflation was in 2020,2021,2022,2023, & est. 2024.
Also, there is a theory that trillion dollar increases to the national debt are unsustainable. I claim, based on Japan, that the US can approach 250% debt/GNP without hyperinflation. Yet I also prefer balanced budgets and no national debts, more for limited & responsible govt reasons. It does seem true, and bad, that America is addicted to govt spending, politically.
Sometimes there are aspects of the truth I don’t like.
It seems to me that your example of $10,000 to each individual is essentially what we did during Covid, and resulted in our recent inflation problem.
The inflation successfully avoided a depression, tho a short, sharp recession. It’s hard to separate out the supply chain problems at the ports and the increased gas costs plus new regulation overhead from M2 growth inflation as seen in prices of … food, fuel, clothes.
Was 2023 & 2024 inflation due to Covid checks to individuals? Wasn’t a lot more govt cash spent on programs like new EV chargers & rural broadband & homelessness, all without much actual production? My claim is that such billions would have been better not spent, or sent directly to households.
Now I’m wondering what the median $60,000 pre-tax income is spent on and what proportion is spent on CPI included stuff.
I've heard some absurd things about inflation, money supply, etc. In the case of what you just wrote, I have no idea if that's what I'm reading, your explanation is too cryptic for me to decipher, or it's completely over my head.
what was the point of posting the Paul Krugman link if you didn't get much out of it?
I believe he said he didn't get much out of the Asness paper Krugman cited.
You are right, thank you for clarifying! It was early and I hadn’t had my coffee yet ;)