3 ms·

Care to share some of your insights, or did you post solely to tell everyone how smart you are?

by reefoctopus 9y ago

michaelchisari 9y ago
Sure, what do you want to know?
- reefoctopus 9y ago
  What do the people who understand blockchains but not monetary theory get so wrong?
  - michaelchisari 9y ago
    Not all blockchains, but bitcoin specifically. The effect of deflation on the velocity of money is the most obvious. https://en.wikipedia.org/wiki/Velocity_of_money https://en.wikipedia.org/wiki/Velocity_of_money The way bitcoin was approached seemed to ignore the idea that the boom/bust cycle is mitigated through regulation and control. It isn't eliminated, but instead dampened. While economic miracles and bull runs seem great, if they are followed by devastating crashes, the market instability and "whiplash effect" of this occurring in rapid succession can slow attempts at economic recovery at best, and spark revolutions at worst. Austrian economists love the idea of "letting the chips fall where they may", but that reductive thinking ignores the social and political upheaval that the previous centuries have taught us result from instability. The financial safeguards that we've been putting in (and unfortunately removing over the past 30-40 years) are there for a reason.
    - makomk 9y ago
      The flip side of this, of course, is that the boom/bust cycle is amplified by fractional reserve banking - banks create and destroy money by changing their lending policies in response to the current global financial situation, and this makes both the booms and the busts bigger. (Apparently, many economists missed this because their model of bank lending is wrong. Some Bank of England staff did a paper on it a while back, if I recall correctly.)
      - nhaehnle 9y ago
        While it sounds plausible on the surface, this is not at all supported empirically. There have never been economies without fractional reserve banking that one could reasonably compare with ours. There are also plausible-sounding arguments to be made in the opposite direction: Fractional reserve banking allows money to be created and destroyed adaptively to support the economy, which makes the economy run more smoothly overall.

Care to share some of your insights, or did you post solely to tell everyone how smart you are?

michaelchisari 9y ago

Sure, what do you want to know?

reefoctopus 9y ago
What do the people who understand blockchains but not monetary theory get so wrong?
- michaelchisari 9y ago
  Not all blockchains, but bitcoin specifically. The effect of deflation on the velocity of money is the most obvious. https://en.wikipedia.org/wiki/Velocity_of_money https://en.wikipedia.org/wiki/Velocity_of_money The way bitcoin was approached seemed to ignore the idea that the boom/bust cycle is mitigated through regulation and control. It isn't eliminated, but instead dampened. While economic miracles and bull runs seem great, if they are followed by devastating crashes, the market instability and "whiplash effect" of this occurring in rapid succession can slow attempts at economic recovery at best, and spark revolutions at worst. Austrian economists love the idea of "letting the chips fall where they may", but that reductive thinking ignores the social and political upheaval that the previous centuries have taught us result from instability. The financial safeguards that we've been putting in (and unfortunately removing over the past 30-40 years) are there for a reason.
  - makomk 9y ago
    The flip side of this, of course, is that the boom/bust cycle is amplified by fractional reserve banking - banks create and destroy money by changing their lending policies in response to the current global financial situation, and this makes both the booms and the busts bigger. (Apparently, many economists missed this because their model of bank lending is wrong. Some Bank of England staff did a paper on it a while back, if I recall correctly.)
    - nhaehnle 9y ago
      While it sounds plausible on the surface, this is not at all supported empirically. There have never been economies without fractional reserve banking that one could reasonably compare with ours. There are also plausible-sounding arguments to be made in the opposite direction: Fractional reserve banking allows money to be created and destroyed adaptively to support the economy, which makes the economy run more smoothly overall.