Nobel Prize-winning economist Paul Krugman says Tesla may have more in common with bitcoin than you think. He explained that Tesla sales have depended in part on the perception that CEO Elon Musk “is a cool guy” while the price of bitcoin is “being sustained by a hard-core group of true believers.”
Paul Krugman Compares Tesla to Bitcoin
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 huge 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 these companies “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.”
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 proceeded to explain “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 really was who he appeared to be, could found a long-lived money machine.” Krugman added: “Tesla sales have surely depended at least in part 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 actually make useful things,” Krugman concluded.
At the time of writing, Tesla’s stock has fallen 70% year-to-date while bitcoin’s price has dropped 65% during the same time period.
Do you agree with Paul Krugman about Tesla and bitcoin? Let us know in the comments section below.
A student of Austrian Economics, Kevin found Bitcoin in 2011 and has been an evangelist ever since. His interests lie in Bitcoin security, open-source systems, network effects and the intersection between economics and cryptography.
Image Credits: Shutterstock, Pixabay, Wiki Commons
Disclaimer: This article is for informational purposes only. It is not a direct offer or solicitation of an offer to buy or sell, or a recommendation or endorsement of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.