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What set Rogowsky off? It appears that Shiller’s statement yesterday, written in the context of Mt.Gox’s collapse, played a role. “The central problem with Bitcoin in its present form, though, is that it doesn’t really solve any sensible economic problem,” Shiller wrote. In Rogowsky’s view, “Schiller could scarcely be more wrong.”
Among the 25,000 merchants now accepting Bitcoin, are Overstock and Fancy. While proponents like Coindesk tend to get ahead of themselves with claims like “paying in bitcoin eliminates the need to enter personal information” — if you want something shipped to you, personal information entry will continue to be involved — the currency is gaining acceptance as a medium of exchange. For many of you, Bitcoin attempts to solve a problem in these cases you don’t have: Paying online by credit card.
Rogowsky notes that Shiller and Krugman probably can’t see this part of the Bitcoin map simply because this isn’t a problem they have. They aren’t part of the 106 million “unbanked” or “underbanked” in the U.S. who don’t have access to debit or credit cards, and therefore can’t access any kind of online products or services. They live in an economic class where this simply isn’t an issue. Nor, for that matter, is the 2% markup they pay on big-ticket items thanks to credit card charges.
… Consider the possibilities of high-dollar purchases where you might be willing to forgo the right to dispute the purchase in exchange for a discount of 2% from the merchant — the money they’d save not taking your credit card. … But what if the savings isn’t just 2%? What if the cost to the merchant is 10% or more just to process payment with a card? If you’re skeptical such businesses are out there, visit the website of ccBill. They process payments for the kind of web services no one else will touch. As ccBill describes it: “Some of these high-risk business models include adult online entertainment, live entertainment and cam sites, penny auction sites, as well as complex business selling. And now even dating sites fall into the high-risk category with MasterCard.”
Even more tellingly, Rogowsky notes that one of the biggest problems Bitcoin solves is one that very few Nobel Prize winning American economists ever have to face: Sending money home to another country. That’s a problem migrant workers face every day, and a major drain in their earnings. That Krugman and Shiller can’t see it is as much a function of class blindness as it is actual economics.
Currently, it costs $8 to send $1000 to Guatemala with Western Union plus whatever they get on the currency conversion. With Bitcoin, the transfer itself is free. The only cost will be in whatever nominal fees the sender might pay to get Bitcoins in the first place and what it might cost the seller to turn them back into the local currency. These are already close to zero and the competition among Bitcoin exchanges is only in its infancy. In 2012, $478 billion in remittances, money transfers across borders, occurred globally. Not only is it hard to imagine Bitcoin failing to play a role in the market, it’s hard to imagine Bitcoin failing to gain a dominant position in it.
For anyone seeking to counter the claims of mainstream economics about the looming failure of Bitcoin and other virtual currencies, this article is a must read.
