In a video Paul Krugman published on his Substack yesterday, which I recommend subscribing to, although I by no means agree with everything he says, he argues that cryptocurrency has largely failed as an economic innovation but has succeeded spectacularly as a means of buying political influence in the United States. I think he is right about much of this.
As most reasoned observers note, crypto has still found remarkably little legitimate economic use. It has not transformed payments, banking or commerce in the way its advocates once promised. What it has created is enormous speculative wealth, and some of that wealth is now being used, as Paul Krugman notes, to secure political power and favourable regulation.
That matters because the crypto industry spent heavily in the 2024 US elections and, Krugman argues, is preparing to spend even more in the 2026 midterms. Its strategy has been straightforward: politicians who threaten its interests can face heavily financed opposition. The purpose is not simply to win individual elections. It is to make politicians afraid of challenging the industry at all.
This is where Krugman's argument matters far beyond cryptocurrency, and where I particularly agree with him. What we are seeing is concentrated private wealth being converted into political power. Crypto is simply an unusually blatant example of a much bigger problem.
There is also an important distinction between crypto and artificial intelligence. Whatever concerns there might be about AI, companies are actually attempting to use it to produce things and provide services. Crypto has achieved nothing remotely comparable. Its economic significance remains overwhelmingly speculative, and it is almost always deeply disruptive, while its political significance has become enormous.
That imbalance should concern us. Wealth generated without corresponding productive activity can still acquire extraordinary political power. Indeed, the ability of rentier wealth to capture political decision-making is one of the key defining problems of our age.
The forthcoming US midterms therefore pose a much bigger question than whether the crypto lobby gets the regulation it wants. The question they ask is whether democratic politics can withstand the power of concentrated wealth when that wealth is deliberately deployed to influence who can realistically hold office.
Krugman describes the coming contest as one between a potential electoral wave and a wave of plutocratic money. I think that framing is substantially right. The issue is ultimately not crypto. It is whether democracy can survive when those with extraordinary wealth are permitted to use it to acquire exceptional political power.
We have been here before: at the beginning of the 20th century, extreme wealth threatened democracy in the USA. President Teddy Roosevelt set out ot beat it, and he did. The power of capital was constrained. But my question is, who in politics will do that now?
That question matters in the United States, but there is no reason to think the influence to which it refers stops at its borders.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
There are links to this blog's glossary in the above post that explain technical terms used in it. Follow them for more explanations.
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Buy me a coffee!
A currency effectively created and owned by the rich to circumnavigate democracy – is one surprised?
Not any more.
You are right to draw attention to it. My worry is that in a world made purposefully ‘short of democratically available money’ people will simply see crypto as the additional resources we need. This is how privatization under Thatcher got going remember after she had lied about tax payers money.
We must not underestimate the risk at all. Krugman is right.
I, and others, have argued here that Government needs to offer a more productive use of capital, meeting social needs through alliancing/partnering with the public sector to achieve beneficial outcomes and fair returns on investment. Tax policy could be aligned with these objectives. Lately, though, I’m worrying that it would simply amount to rearranging the deckchairs. Cheer me up, someone!
As the finance group has, and does, dominate our democracy faced polyarchy, might we, like America since 2010, be, effectively, plutocracies?
P.S. In 2010 the American Supreme Court ruled that it was unlunawful to limit political donations.
Crypto wasn’t created by the rich, although it was intended to circumvent centralised control by distributing confirmation to the network.
At a time when authoritarian regimes seem to be on the rise, the reasons for their existence should be clearer now. In a sufficiently free society there is less need for any kind of shadow banking system.
The point is that it is unregulated, and also the problem (yes, there are regulations with reputable operators but equally there are avenues to bypass these).
I disagree on the utility, particularly when you look at Solana and others which provide smart contracts to set up genuinely inviolable rules between parties. I would rather have a smart contract enforce how things are settled than have recourse to a lawsuit – because the latter is too expensive to be a suitable avenue to many.
Having said that, I do agree that there are a number who have accued significant wealth through speculation or fraud who are then using this to buy influence. Crypto is not necessarily less transparent on this – the blockchain provides means to trace most transactions (even through cross-network transactions and through systems that disguise sources somewhat like tumblers).
The problem is extreme wealth being able to buy influence with any kind of asset – whether that’s crypto investments, fund investments, paying for events, paying influencers to harrass a president into agreeing to a pardon, an aircraft, or something else. Compared to padded or subsidised contracts and the like, crypto is relatively transparent.
Legislation needs to catch up, but it needs to focus on the offer or movement of assets to gain influence in general, not a specific asset class.
I agree that the fundamental problem is not crypto itself, but the ability of extreme wealth to buy political influence, whatever form that wealth takes.
Where we differ is that I am less convinced that replacing institutional authority with supposedly inviolable technological rules necessarily increases freedom. Courts and regulation are imperfect, but they provide remedies when contracts are unfair, circumstances change or power is abused. Code cannot necessarily do that.
Crypto therefore needs regulation, but I agree that regulation must go much further. The real objective should be preventing economic power, whether derived from crypto, shares, property or anything else, from buying political power.
Helpful thanks Prof
Useful to remind ourselves of words and their meanings.
Crypto comes from the Greek word Kryptos – hidden or secret not open or transparent.
Democracy is also from Greek, Demos Kratos, meaning People Rule, not Billionaires.
Agreed. Thank you.