Frozen coins

ANOTHER FLAW OF BITCOIN

Its cost of ‘production’ or mining can only go up because of the nature of the 21 million cap.

When the cost of mining exceeds bitcoin’s price, miners will shut down. What happens then? You can’t transact bitcoin if miners won’t validate the deal. You can’t even have your Minsky Moment.

Ok, it becomes a Disney asset: Frozen. It will be a winter of discontent.

Bitcoin and bubble gum

Taleb is right, and Bitcoin is no bubble.

Maybe it’s gum.

A “bubble” becomes a bubble when you run out of nonbankrupt people calling it a bubble. ~ Nassim Taleb

The hard part is deciding when the bubble will pop.

So, when a rich guy tells you something is fundamentally great, he’s enticing you to do the bubble; but it’s not, until he shuts up. Think Buffett and Coke.

If the same guy tells you it’s a bubble, it isn’t, because he wants to slow you down so he can get in. When he shuts up, then it’s bubble time. This goes for seemingly staid banker types.

The rich guy then shuts up when he’s selling and laughing.

Sum-up: A bubble has two elements – a rising price, and an inevitable but unpredictable crash. It doesn’t mean that the smart money can’t get rich at others’ expense.

Disclaimer: I call Bitcoin a bubble. But then my opinion doesn’t count. After all, I’m just an economist, and Nassim Taleb says economists don’t know anything. He’s right.

Economics in disarray

Economics has problems. Because of Samuelson, it got a half-century case of physics envy. Then people read Schumpeter and McCloskey, and realized economics can’t predict a whit. Economics became useful (ex post) stories, a bit like archaeology or geology.

Then came The End of History (1989) and The Great Recession (2008), and weirdos still talk of evolving economics, but into what they can’t explain. Like Marx redux, they blame ‘capitalism’ or neoliberals, though they can’t go whole hog back to old-style apparatchik economics. Some think that the missing link is a co-equal infant science called psychology.

What to do? At one point, one way out was to study ‘institutions.’ But this seemed like hard work — too much scholarly pain for little gain. But gains there were if you read Coase or Ostrom, or (if you want Keynes to shudder) Hayek.

Perhaps that’s just the way it is. Economists are more like chickens with no heads but imaginarily pecking away at crumbs of intellectual progress. Some toil away at saving the world from falling over a cliff, much like Salinger’s Catcher in the Rye. That’s at least humanitarian if mostly unheralded.

Keynes did say that economists should be more like dentists. Dentists are good guys who help people prevent cavities and enable them to smile. The economist can then go home after a day’s work knowing the economy will still do its wayward thing but not die.

12 Articles Every Aspiring Economist Should Read | Steven Horwitz

Here are 12 important articles to help you understand sound economics, ideally before you head off to grad school in economics.

Note: Coase, Hayek, McCloskey, Alchian, Buchanan, Friedman, Lucas

Source: 12 Articles Every Aspiring Economist Should Read | Steven Horwitz

EC 11. Special HW on the stock market

Imagine that your grandparent willed you P1 million. You have decided to invest this inheritance in the Philippine stock market, specifically in only one company.

Your homework assignment is to choose that one company, and report at how much you acquired the stock (any price at which it traded in the PSE will do) in an email, and to give a short explanation for your choice.

A second part of this assignment is to report at the end of the semester how your investment did, and to give a brief explanation of how or why the outcome came about. Try to answer the following questions, based on your readings and your experience in this imaginary experiment: Are stock market investors who win just lucky? To what extent do diligence and smarts matter?

The first part is due by Friday, February 5, 2016. The second part is due on March 20.

EC 12. Pointers No. 1

FAQs on early thinking about economic concepts and related issues from the time of the Ancients to that of the Middle Ages

These cover the Prologue and the first two chapters of Backhouse, and McCloskey’s Three-Minute History of economic thought.

General pointers:

Get a textbook on introductory economics, such as those by Gerry Sicat, Mankiw, or Parkin. Such a book will help you to understand concepts discussed in the history of economic thought.

Before doing any of the assigned readings, take some time to ask yourself what you want to learn from the readings. This means you have to skim the material to get a sense of what they cover, and whether the topics discussed are interesting.

Specific pointers are given here in the form of questions that could be part of an essay exam or homework. Read the material in search of answers to the pointer-questions. You may jot down notes for yourself on how you would answer the questions.

Continue reading “EC 12. Pointers No. 1”