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Inflation is a feature, not a bug. It encourages you to spend your money which, in turn, allows others to use it to produce "growth". The reason we need money

Inflation is a feature, not a bug. It encourages you to spend your money which, in turn, allows others to use it to produce "growth". The reason we need money, from a societal sense, is that there is a time gap between when we decide to build something and when that thing is finished. You need access to raw materials, or labour before the thing you are building is completed. The premise is that the thing you are building is more valuable than the raw material and labour that went into it. Money is basically a lubricant that allows you to pay people before you start and then balance the books after you finish. If money increased in value over time, we would have a problem. Let's say that the thing you are building will return an extra 5% on the investment. If holding on to money and doing nothing returned 10% in the same time period, you would be stupid to build the thing. You will make more money by doing nothing. In a deflationary system, people will tend not want to risk the money they have by spending it to build something. This means less demand for goods and services and causes people to be idle. Access to capital is harder because why would I lend you money when I can just make a return by doing nothing? If I'm going to lend it to you, you had better lock in a really good rate -- which means you need to have a spectacular return on investment in your enterprise. Essentially, rich people are rewarded and poor people are screwed. Society has no incentive to build things and poor people can't bootstrap themselves out of poverty without incredible risk. I think the easiest way to verify this for yourself is to look at BTC. If you own BTC, what value does it have on society sitting in your wallet? Now consider using those BTC to buy something and employ people. Would you do it? Or would you rather park the BTC in your wallet and hope for a 2-300% return through deflation? Imagine I wanted to start a game company and I would like to borrow your BTC so that I can hire artists, musicians and programmers? Would you lend me your money? What kind of promises would it take to entice you to lend me your money? Now imagine a currency where the value decreases over time. So you have a million units and over the period of your lifetime, the value will decrease to almost nothing. How does that change your view of whether or not it's a good idea to lend me your money? How does that ultimately affect society?

zik 9y ago
The people who told you "Inflation is a feature, not a bug" are the same people who benefit from you believing that. People have used assets like gold as money for thousands of years without long term inflation and it worked very well. It's only in the last hundred years or so that we've been sold the idea that our money should be worth less tomorrow than it is today. Put that way it sounds like a bad thing and that's because it is a bad thing. One way of looking at inflation is that it's a motivator to encourage us to give our money to other more powerful people before it loses its value. Those more powerful people are the people who told us that inflation is a good thing. Cryptocurrency takes monetary control away from the rich and democratises it.
- cycrutchfield 9y ago
  >People have used assets like gold as money for thousands of years without long term inflation and it worked very well. You think that the amount of gold in circulation has been constant for thousands of years?
- xapata 9y ago
  Yet you're not suspicious that folks who have bitcoin claim deflation is useful? > without long term inflation and it worked very well Au contraire, past attempts at maintaining a non-inflationary currency have failed.
- closeparen 9y ago
  I don’t know about you, but I’d much rather have the economy of 1917-2017 than 1417-1517. It’s only in the last 100 years or so that we’ve had, y’know, industrialization and a rapidly rising standard of living. “It worked for thousands of years before the industrial revolution” is an exceedingly poor argument for an economic system.
  - mattm 9y ago
    The progress of the last 100 years has a lot more to do with technological progress and less to do with the economic structure. Technically the US was still on the gold standard up until the 70s.
    - closeparen 9y ago
      Well sure, I'm not arguing that monetary policy is responsible, only that "it worked fine during feudalism" is a silly argument.
appleflaxen 9y ago
you make the argument that inflation is good, but prove it by specifics which only suggest that deflation is bad. Why is inflation better than no-inflation and no-deflation?
- AznHisoka 9y ago
  I would love to hear a decent answer to this as well. To this day i have never received a satisfying answer to this as most inflation supporters think I am a deflation supporter. While i really support No-deflation and No-inflation.
- xapata 9y ago
  Hitting an exact zero change is impossible, outside of the beautiful assumptions of a system of a equations. A practical person thus chooses which side of zero is better, for those times (effectively all the time) that we can't guarantee equilibrium.
- int_19h 9y ago
  It follows directly from his example. Inflation means that you need to invest your money into something (i.e. either use it directly to buy goods and hire people to produce a product or service and sell it, or else lend it with interest to someone else who will do so on your behalf). In essence, an inflation economy is one where the only money that is not in immediate circulation is the one that is currently reserved for anticipated imminent transactions (i.e. the bills in your wallet, or in the cash register before the end of the day) - which is a tiny amount. Everything else is parked in some bank account, investment fund, stock etc, where it generates interest for the holder by being loaned out to someone else who currently needs it to produce. So with some non-zero inflation, you maximize the utility of your monetary tokens as medium of exchange.
- mikekchar 9y ago
  There is always going to be a sweet spot where you have enough inflation to convince people to invest their money and not so much that they dump the currency altogether. That sweet spot could be zero. It could even be mild deflation. For example, Japan has been mildly deflationary for a decade or more (though it isn't reported that way, and I think it's a problem). It's not necessarily that bad. With a decreasing work force, one could even argue that right now there is no point to having inflation because unemployment is as close to zero as it's going to get. It really depends. My point really was that you would never intentionally build a modern economic system that was deflationary. It doesn't make sense, except in some limited circumstances. You will almost always want it to be very slightly inflationary to encourage people not to sit on cash. Exactly where you want inflation depends a lot on the situation, so it's not a one-size fits all. One thing that's interesting to ponder on is that money is always out of sync with goods and services. So you do some work and get paid. That money should be worth something. But imagine the situation where everybody did a bit of work, got paid enough to retire and then expected to be able to spend their money at the same time -- there is nobody left to work, so they can't spend the money. The system actually requires that people spend pretty much all the money they make because otherwise nobody needs to work for the next round of goods/services. Accumulation of wealth is actually a serious problem for society. It's one of the reasons you have many people encouraging high birth rates and/or immigration so that the population grows -- it keeps your money valuable by having something to spend it on. Now this seems to be clearly insane, but I think human society has a long way to go in terms of giving everyone a comfortable life while still encouraging the work necessary to provide that lifestyle.
deleted 9y ago
[deleted]
taysic 9y ago
There's a big difference between money that returns 10% within a given time period and money that remains even, or has mild ups and downs in value. If money becomes noticeably less valuable over time it becomes less attractive to hold money at all - and instead scarce assets like a house, land, or gold, etc would be far more desirable. Suddenly everyone is happy to lend you money but no one wants to hold it. Prices soar. It's true that BTC would be hard to keep as a currency because there is a tendency toward hoarding when something is rising in value. That doesn't prove inflation is desirable though.
- xapata 9y ago
  You're equating mild, consistent inflation with hyper-inflation. That's not valid. Economies are non-linear dynamical systems that experience phase changes when they pass certain manifolds. Thus the phrases "mild inflation" and "hyper-inflation" aren't just quantitative but also qualitative.
mattm 9y ago
> Essentially, rich people are rewarded and poor people are screwed Yet with our inflationary system, this is exactly what has been happening.

zik 9y ago

The people who told you "Inflation is a feature, not a bug" are the same people who benefit from you believing that. People have used assets like gold as money for thousands of years without long term inflation and it worked very well. It's only in the last hundred years or so that we've been sold the idea that our money should be worth less tomorrow than it is today. Put that way it sounds like a bad thing and that's because it is a bad thing. One way of looking at inflation is that it's a motivator to encourage us to give our money to other more powerful people before it loses its value. Those more powerful people are the people who told us that inflation is a good thing. Cryptocurrency takes monetary control away from the rich and democratises it.

cycrutchfield 9y ago
>People have used assets like gold as money for thousands of years without long term inflation and it worked very well. You think that the amount of gold in circulation has been constant for thousands of years?
xapata 9y ago
Yet you're not suspicious that folks who have bitcoin claim deflation is useful? > without long term inflation and it worked very well Au contraire, past attempts at maintaining a non-inflationary currency have failed.
closeparen 9y ago
I don’t know about you, but I’d much rather have the economy of 1917-2017 than 1417-1517. It’s only in the last 100 years or so that we’ve had, y’know, industrialization and a rapidly rising standard of living. “It worked for thousands of years before the industrial revolution” is an exceedingly poor argument for an economic system.
- mattm 9y ago
  The progress of the last 100 years has a lot more to do with technological progress and less to do with the economic structure. Technically the US was still on the gold standard up until the 70s.
  - closeparen 9y ago
    Well sure, I'm not arguing that monetary policy is responsible, only that "it worked fine during feudalism" is a silly argument.

appleflaxen 9y ago

you make the argument that inflation is good, but prove it by specifics which only suggest that deflation is bad. Why is inflation better than no-inflation and no-deflation?

AznHisoka 9y ago
I would love to hear a decent answer to this as well. To this day i have never received a satisfying answer to this as most inflation supporters think I am a deflation supporter. While i really support No-deflation and No-inflation.
xapata 9y ago
Hitting an exact zero change is impossible, outside of the beautiful assumptions of a system of a equations. A practical person thus chooses which side of zero is better, for those times (effectively all the time) that we can't guarantee equilibrium.
int_19h 9y ago
It follows directly from his example. Inflation means that you need to invest your money into something (i.e. either use it directly to buy goods and hire people to produce a product or service and sell it, or else lend it with interest to someone else who will do so on your behalf). In essence, an inflation economy is one where the only money that is not in immediate circulation is the one that is currently reserved for anticipated imminent transactions (i.e. the bills in your wallet, or in the cash register before the end of the day) - which is a tiny amount. Everything else is parked in some bank account, investment fund, stock etc, where it generates interest for the holder by being loaned out to someone else who currently needs it to produce. So with some non-zero inflation, you maximize the utility of your monetary tokens as medium of exchange.
mikekchar 9y ago
There is always going to be a sweet spot where you have enough inflation to convince people to invest their money and not so much that they dump the currency altogether. That sweet spot could be zero. It could even be mild deflation. For example, Japan has been mildly deflationary for a decade or more (though it isn't reported that way, and I think it's a problem). It's not necessarily that bad. With a decreasing work force, one could even argue that right now there is no point to having inflation because unemployment is as close to zero as it's going to get. It really depends. My point really was that you would never intentionally build a modern economic system that was deflationary. It doesn't make sense, except in some limited circumstances. You will almost always want it to be very slightly inflationary to encourage people not to sit on cash. Exactly where you want inflation depends a lot on the situation, so it's not a one-size fits all. One thing that's interesting to ponder on is that money is always out of sync with goods and services. So you do some work and get paid. That money should be worth something. But imagine the situation where everybody did a bit of work, got paid enough to retire and then expected to be able to spend their money at the same time -- there is nobody left to work, so they can't spend the money. The system actually requires that people spend pretty much all the money they make because otherwise nobody needs to work for the next round of goods/services. Accumulation of wealth is actually a serious problem for society. It's one of the reasons you have many people encouraging high birth rates and/or immigration so that the population grows -- it keeps your money valuable by having something to spend it on. Now this seems to be clearly insane, but I think human society has a long way to go in terms of giving everyone a comfortable life while still encouraging the work necessary to provide that lifestyle.

deleted 9y ago

[deleted]

taysic 9y ago

There's a big difference between money that returns 10% within a given time period and money that remains even, or has mild ups and downs in value. If money becomes noticeably less valuable over time it becomes less attractive to hold money at all - and instead scarce assets like a house, land, or gold, etc would be far more desirable. Suddenly everyone is happy to lend you money but no one wants to hold it. Prices soar. It's true that BTC would be hard to keep as a currency because there is a tendency toward hoarding when something is rising in value. That doesn't prove inflation is desirable though.

xapata 9y ago
You're equating mild, consistent inflation with hyper-inflation. That's not valid. Economies are non-linear dynamical systems that experience phase changes when they pass certain manifolds. Thus the phrases "mild inflation" and "hyper-inflation" aren't just quantitative but also qualitative.

mattm 9y ago

> Essentially, rich people are rewarded and poor people are screwed Yet with our inflationary system, this is exactly what has been happening.