Analyzing Growth: Lecture Support for Econ 113 S2018

Should-Read: A nice piece by Paul Krugman on Twitter this morning about the two Silicon Valley bubbles—NASDAQ and BitCoin. NASDAQ at least had some fundamentals underlying it. BitCoin not so much: the ability to create for free a commodity with identical qualities to BitCoin and then peg it for a while before tiptoeing away renders it unstable, in the absence of a hegemon, in a way that gold is not: Paul Krugman: "I am surely not the only person experiencing a fair bit of cryptofreude—pleasure in watching the Bitcoin etc bubble deflate...

...Bitcoin cultists tend, after all, to be nasty as well as crazy; not all of them, but surely above the average. But one thing people may wonder is, why aren't we having a simple Wile E. Coyote moment (Wile E. Cryptocoyote?)? As we know from the laws of cartoon physics, someone who runs off a cliff is supposed to plunge as soon as he notices there's nothing under his feet. What we see instead is a series of plunges followed by partial recoveries:

BitCoin Price

It's worth noting, then, that you saw the same thing (in much slower motion) as the dotcom bubble burst way back when:


Back then there was a reserve of true believers who kept buying the dips, sure that the market would eventually regain its faith in techno-magic. Some of the same thing presumably happening now. Plus there are probably market manipulators now, trying to support things.

The point is that even though bubbles are, in effect, natural Ponzi phenomena, they don't end as cleanly and suddenly as deliberate Ponzi schemes. To realize the full joy of cryptofreude, you need to be a bit patient...