In a gallery of New York Times, Paul Krugman, Nobel Prize in 2008, wants to see “disturbing similarities” between cryptocurrencies and the subprime crisis. An old-school economist’s vision that is easy to dispute…
His name is Paul Krugman and he received the Nobel Prize in Economics in 2008. If his name is readily cited by certain politicians close to President Macron, it is because he recently split from a noticed stand in the New York Timesin which he allows himself much praise for the measures taken by France to manage its economy during the pandemic.
More recently, on January 27, in a free forum published again in the New York TimesKrugman gave his mood of the moment vis-à-vis cryptocurrencies and the relative fall in prices observed in January, with a Bitcoin briefly fell back to around 30,000 dollars, after flirting with 68,000 dollars on November 10th.
What does Krugman tell us? He sees some “disturbing parallels” between crypto and the subprime mortgage crisis that first brought the US economy to its knees in 2008, and then the entire world in its wake.
How does the economist establish this similarity? By explaining that the subprime crisis was born essentially from the fact that the banks granted loans at a time when interest rates were low, while the price of habitats was experiencing a sharp rise. And then, the market saturated, borrowers found themselves in a situation where they were no longer able to repay their due and there was a domino effect of financial losses.
However, according to Krugman, crypto investors are offered to invest in speculative assets without really understanding the risks involved, which would augur a sad future.
Krugman, a long-time crypto-skeptic
Krugman isn’t entirely wrong. However, it is easy to perceive in him an economist of the old school, somewhat overwhelmed by the twists and turns of a new technology whose functioning he struggles to perceive.
As a reminder, Krugman is not at his first attempt. Already, on December 15, 2017, Krugman delivered an interview at CNBC in which he compared Bitcoin to a bubble similar to that of real estate while also admitting that ” Bitcoin, nobody understands anything about it “. Then, on July 31, 2018, the economist had allowed himself an unambiguous platform in the New York Times titled: ” Why I’m a Crypto Skeptic » written while he was, according to his own words, in the process of doing bicycle in Europe. He delivered this deep thought revealing a spirit all the same very confused: “ What problems does this technology solve? What does it do that other less expensive and easier to use technologies can’t do equally well and better? I still haven’t found the answer. »
One would have thought that Paul Krugman would have subsequently modulated his opinion in view of recent developments in the field, but that was not the case. On May 20, 2021, he gives us another chronicleeven stranger, in which he laments that, in his opinion, Bitcoin and others have failed to achieve any sensible economic role: “ What happens to their value doesn’t really matter to those who don’t play the crypto game. And to add that with the Bitcoin the monetary system has gone back 300 years, when gold was the main currency.
This time, it becomes permissible to question the good faith of the economist. Could he have written this column on a morning of weak inspiration? In fact, we find surprising comparisons in Krugman, such as when he compares cryptocurrency to a Ponzi scheme – the last comers pay the first comers.
The worrying intellectual blindness of the economist
Of course, there is a grain of truth in some of Krugman’s arguments. It is clear that a certain audience has rushed to some falsely enticing crypto offers, especially in the area of NFT. However, Krugman like other old-style economists, jostled by a phenomenon that they struggle to analyze within the framework of their classic reference system – which we can easily understand – deliver analyzes that are easy to disassemble.
Thus, the cryptocurrency market has already experienced several booms followed by spectacular declines, but each time it has gradually recovered to reach new heights. Is it necessary to recall that, even at its current rate ($37,000 at the time of writing), Bitcoin remains the most profitable investment of the past twelve years? Let’s not forget that one BTC was worth $0.06 in 2009.
That’s not all. Basic intellectual honesty might have made Krugman wonder why at least 300 US banks decided to integrate Bitcoin trading into their offerings. And why was the IPO of the exchange (trading platform) Coinbase in April 2021 more successful than that of Facebook in 2012? And how could Krugman have neglected to notice that reputable institutions as serious as JP Morgan, Citibank, Goldman Sachs, Morgan Stanley have integrated cryptocurrencies into their investments?
On the economic utility of cryptos
Moreover, Bitcoin and its avatars have repeatedly demonstrated that they have real economic utility. El Salvador is a good example. This country had an official currency – the bolivar – whose value continued to decrease, making it difficult to save sustainably. Since Bitcoin became a legal currency there in September 2021, Salvadorans have had a currency that is much more stable than their national currency. What’s more, the adoption of Bitcoin has allowed this Central American country to escape the yoke of the dollar and potential American sanctions.
Encouraged by this example, nations such as Honduras, Nicaragua, Guatemala, the Dominican Republic and Jamaica (Central America), Morocco and Senegal (Africa), Vietnam, the Philippines and Sri Lanka (Asia Southeast) and many others, would consider following the example of El Salvador. This is the first point that Krugman fails to see: cryptocurrencies not only can be used for the economy but can also help free many peoples from the pangs of their local currencies. Remember that in Venezuela, Kenya, Cuba or North Korea, the national currency has sometimes suffered such devaluation that citizens have seen their assets lose a huge part of their value.
Krugman also seems to overlook the new opportunities offered by certain apps DeFi (decentralized finance), such as the possibility of ensuring a single plane flight, of contributing to the construction of a solar panel farm and of being remunerated up to the amount of your investment…
Furthermore, cryptocurrency promotes a lot of worthy humanitarian initiatives. Thus, very recently, Bitcoin contributors have been heavily involved in financing the construction of one solar power station in Zimbabwe.
Outmoded…
Far be it from us to pretend that everything would be rosy in the kingdom of cryptocurrencies. This is not the case and it never will be. However, one can reproach certain intellectuals who fail to integrate this admittedly complex new model into their psyche, thus taking refuge in unfounded clichés.
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