Paul Krugman: Bits and Barbarism

Turning back the clock:

Bits and Barbarism, by Paul Krugman, Commentary, NY Times: This is a tale of three money pits. It’s also a tale of monetary regress — of the strange determination of many people to turn the clock back on centuries of progress.

The first money pit is ... the Porgera open-pit gold mine in Papua New Guinea, one of the world’s top producers. The mine has a terrible reputation for both human rights abuses ... and environmental damage... But gold prices, while down from their recent peak, are still three times what they were a decade ago, so dig they must.

The second money pit is a lot stranger: the Bitcoin mine in Reykjanesbaer, Iceland. Bitcoin is ... by design, a kind of virtual gold. And like gold, it can be mined: you can create new bitcoins, but only by solving very complex mathematical problems...

The third money pit is hypothetical. Back in 1936 ... Keynes argued that increased government spending was needed to restore full employment. But then, as now, there was strong political resistance... So Keynes whimsically suggested ... the government bury bottles full of cash in disused coal mines, and let the private sector spend its own money to dig the cash back up. ...

Keynes ... went on to point out that ... gold mining was a lot like his thought experiment. Gold miners were, after all, going to great lengths to dig cash out of the ground, even though unlimited amounts of cash could be created at essentially no cost with the printing press. ...

Keynes would, I think, have been sardonically amused to learn how little has changed...

So why are we tearing up the highlands of Papua New Guinea to add to our dead stock of gold and, even more bizarrely, running powerful computers 24/7 to add to a dead stock of digits?

Talk to gold bugs and they’ll tell you that ... governments ... can’t be trusted not to debase their currencies. The odd thing, however, is that ... such debasement is getting very hard to find. ...

Bitcoin seems to derive its appeal from more or less the same sources, plus the added sense that ... it must be the wave of the future.

But don’t let the fancy trappings fool you: What’s really happening is a determined march to the days when money meant stuff you could jingle in your purse. In tropics and tundra alike, we are for some reason digging our way back to the 17th century.