Paul Krugman Tesla Bitcoin Elon Musk Crypto Economist

Key Points:

• According to economist and Nobel laureate Paul Krugman, bitcoin and Tesla may have more in common than you might realize.
• The economist explained that mega-corporations like Apple, Microsoft, and Amazon have maintained their dominance because they “benefit from strong network externalities — loosely speaking, everyone uses their products because everyone else uses their products.”

According to economist and Nobel laureate Paul Krugman, bitcoin and Tesla may have more in common than you might realize. He explained that the price of bitcoin is “being supported by a hard-core group of real believers,” whereas Tesla sales have depended partly on the notion that CEO Elon Musk “is a cool guy.”

Paul Krugman, who won the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel in 2008 for his analysis of trade patterns and location of economic activity, published an opinion piece in the New York Times Tuesday about Tesla, bitcoin and their vast valuations. He wrote:

Tesla and bitcoin may have more in common than you think.

The economist explained that mega-corporations like Apple, Microsoft, and Amazon have maintained their dominance because they “benefit from strong network externalities — loosely speaking, everyone uses their products because everyone else uses their products.”

However, “It’s hard to see what would give Tesla a long-term lock on the electric vehicle business,” Krugman described. “Where are the powerful network externalities in the electric vehicle business?” he questioned, emphasizing: “Electric vehicle production just doesn’t look like a network externality business.”

Krugman continued:

It’s hard to explain the huge valuation the market put on Tesla before the [price] drop, or even its current value.

The Nobel Prize laureate explained, “why Tesla was ever worth so much.” He believes that it’s because “investors fell in love with a storyline about a brilliant, cool innovator, despite the absence of a good argument about how this guy, even if he was who he appeared to be, could found a long-lived money machine.” Krugman added: “Tesla sales have surely depended at least partly on the perception that Musk himself is a cool guy.”

Describing a parallel between Tesla and bitcoin, the Nobel Prize-winning economist detailed:

Despite years of effort, nobody has yet managed to find any serious use for cryptocurrency other than money laundering. But prices nonetheless soared on the hype, and are still being sustained by a hard-core group of true believers.

“Something similar surely happened with Tesla, even though the company does make useful things,” Krugman concluded.

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