Nobel Prize in Economics compares cryptocurrencies to the subprime that caused the 2008 crisis
Nobel Prize-winning economist Paul Krugman has a very far-reaching platform. The former MIT and Princeton professor has used his column in The New York Times to advocate free markets, clean energy and financial regulation.
This becomes evident in his latest article, in which he compares the crypto market with that of the notorious subprime mortgages.
For those who weren’t paying close attention, or were too young to remember, in the 2008 financial crisis it was subprime mortgages that kickstarted the ensuing domino effect.
Bottom line: Lenders gave complicated loans to people who couldn’t pay in the long term. Most of these mortgages had low initial interest rates that increased over time, the rationale being that homeowners could refinance the deal at better terms in the future. After all, house prices are always going to go up, right?
But home prices stopped rising in the United States and many Americans defaulted on their loans. Importantly, Wall Street turned these subprime mortgages into investment products and, it seems, everyone had exposure to them. The dominoes began to fall in the US and, consequently, in the rest of the world.
Krugman points out that the crypto market is not big enough to produce a worldwide crisis, but claims that the same group of people affected by complex lending in 2008 is being hit again.
The New York Times columnist cites a survey by the NORC institute which revealed that 44% of crypto investors are non-white and more than half do not have a college degree.
He goes on to say that investors in Bitcoin and other cryptocurrencies “should be people well equipped to make that judgment and financially secure enough to bear the losses if the skeptics are right” – the economist makes it clear he doesn’t think the skeptics are right.
Furthermore, it claims that the crypto industry’s arguments about democratizing the market are very similar to those selling risky mortgages.
Philosophy professor Troy Cross at Reed College took issue with Krugman’s argument that a certain group of people should be protected from these markets and from themselves.
“Krugman’s last missive: only the rich (mostly whites) are smart and capable enough to invest in cryptocurrencies. Make it illegal for anyone else,” he tweeted.
The gist of Krugman's latest missive: only the rich (mostly white) are smart and capable enough to invest in crypto. Make it illegal for anyone else.
But… Krugman himself is a rich, white, Nobel laureate who missed a $3t asset class while plebs around the world front ran him.
— Troy Cross (@thetrocro) January 28, 2022
Alex Gladstein, chief strategist at the Human Rights Foundation and famous Bitcoin supporter, pointed to the crypto community’s complicated relationship with traditional media and called the column the “peak” of that enmity.