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But I never got this reasoning. I've never not bought something because putting my money in some investment account will give me a few percent return... I'm no

But I never got this reasoning. I've never not bought something because putting my money in some investment account will give me a few percent return... I'm not buying a house because the "market is good", i'm buying a house because I need a damn house. I'm not buying food or gas because otherwise my money will be worth less soon, i'm buying it because I need it. Yes, i understand that things will be vastly different if the whole world adopted deflationary currencies, but I disagree that it would be the end of civilization as many people seem to imply when talking about how "dangerous" a deflationary currency is. There exist markets that you can put your money in and make more than inflation reliably. According to your reasoning, wouldn't the existence of those markets mean there is no incentive for me to spend my money at all right now? I'm not trying to start an argument here, I just never heard a satisfactory reason here besides "trust me i'm an economist". Does it have to do with the extra "work" required to invest in these kinds of things that prevents them from being a problem? I'd argue that there's a lot more to it than just "deflation" vs "inflation", and that bitcoin as it currently stands isn't going to cause a massive collapse of the economy where nobody spends any money at all ever.

JumpCrisscross 9y ago
> There exist markets that you can put your money in and make more than inflation reliably No, there don't. Even holding U.S. Treasuries is riskier than holding cash. > bitcoin as it currently stands isn't going to cause a massive collapse of the economy Nobody is saying that. What it has done is cause a collapse of the Bitcoin economy, i.e. the markets for real goods and services denominated in Bitcoin. If you think Bitcoin will go up 50% next week, you aren't going to use it to buy a cup of coffee. You'll use U.S. dollars, which will be worth a little less (albeit, probably, imperceptibly so) by then [1]. [1] https://en.wikipedia.org/wiki/Gresham%27s_law https://en.wikipedia.org/wiki/Gresham%27s_law
- Klathmon 9y ago
  >What it has done is cause a collapse of the Bitcoin economy, i.e. the markets for real goods and services denominated in Bitcoin. Bitcoin has been extremely volatile it's entire existence, and yet many merchants adopted it as a payment method. I'll say it again, it's not "deflation" that's causing the collapse of bitcoin (although I'd argue it's not collapsing right now, but just struggling), it's the fact that a blockchain cannot scale at this time. Steam used bitcoin for years successfully, and only recently had to stop because of transaction fees. Microsoft used bitcoin for years happily, and only recently had to stop because of transaction fees. All of these companies that are no longer using bitcoin, cite transaction fees as the reason, not the "eventually deflationary" nature of it (which was always the case, even when they started using it). The blockchain as an idea cannot handle this kind of scale, and until that problem is solved, all decentralized cryptocurrencies will fail to get past this hard wall, whether deflationary or inflationary. Luckily there are many bright people working on this problem, both in bitcoin and in other altcoins, and I have hope that it will soon be solved, but until then cryptocurrencies will struggle to reach mass adoption.
  - JumpCrisscross 9y ago
    > it's not "deflation" that's causing the collapse of bitcoin (although I'd argue it's not collapsing right now, but just struggling), it's the fact that a blockchain cannot scale at this time I agree. I'm only refuting the argument that Bitcoin is not deflationary.
    - Klathmon 9y ago
      But by that definition bitcoin is inflationary depending on where you draw the lines. There was a period of about 3 years where bitcoin's value was dropping every day, and just this weekend it dropped 10-20%. How can "deflation" be a useful definition if it can apply or not depending on the ever changing value of an asset? or even what you compare the value against.
      - JumpCrisscross 9y ago
        > How can "deflation" be a useful definition if it can apply or not depending on the ever changing value of an asset? I responded to this question elsewhere [1]. TL; DR Economies can change modes. The American economy was hyper inflationary in the 1970s, then deflationary in the early 1980s and the flipped back to a long-run trend growth of inflation until the dot-com bust. The gold standard for measuring price level changes is to measure actual prices. The inscrutability of the Bitcoin economy forces the use of proxy metrics, e.g. the exchange rate between U.S. dollars and Bitcoins. This is appropriate given the entire legitimate Bitcoin economy is a subset of the U.S. dollar economy, with prices in Bitcoin often being pegged to an implied U.S. dollar price. [1] https://news.ycombinator.com/item?id=16097280 https://news.ycombinator.com/item?id=16097280
        Klathmon 9y ago
        Fair enough. I still disagree that bitcoin being eventually limited in supply is a bad thing, but it appears that I have misunderstood the meaning of inflation and deflation, and I struggle to understand why the definition as you described it is useful. >This is appropriate given the entire legitimate Bitcoin economy is a subset of the U.S. dollar economy, with prices in Bitcoin often being pegged to an implied U.S. dollar price. I think this is a consequence of our language and location, as bitcoin is a global asset and therefore gets pegged against many other currencies across the planet. Still, I understand your point, and I appreciate the discussion!
- FabHK 9y ago
  I'd say that risk-free real rates have actually been positive almost always, so what GP says is right. Holding US Treasuries is risk less for all practical purposes (your cash can be stolen).
  - JumpCrisscross 9y ago
    > risk-free real rates have actually been positive almost always No, they haven't [1]. The U.S. Treasury issues inflation-indexed bonds [2]. Their rates have gone negative, from time to time. In the financial crisis there were non-bank institutions who couldn't find a buyer for their Treasuries fast enough to avoid default on short-term debt. The paranoid fucks who held cash out-survived those who accepted the liquidity risk of holding Treasuries over cash for anyone who (a) doesn't have access to the Federal Reserve discount window [3] and (b) hasn't ensured all their time-sensitive payment terms allow for settlement with Treasuries. [1] https://fred.stlouisfed.org/series/DFII10 https://fred.stlouisfed.org/series/DFII10 [2] https://en.wikipedia.org/wiki/United_States_Treasury_security#TIPS https://en.wikipedia.org/wiki/United_States_Treasury_securit... [3] https://en.wikipedia.org/wiki/Discount_window https://en.wikipedia.org/wiki/Discount_window
    - FabHK 9y ago
      > Their rates have gone negative, from time to time. Nobody disputes that occasionally, real rates have turned negative (Great depression, 1970's, or after the GFC 2011-2013 in the USA, with some countries in Europe even having negative nominal rates). However, predominantly real rates are positive [1, 2, 3 or even your 1], and some of the earlier episodes were arguably caused by the gold standard. > non-bank institutions who couldn't find a buyer for their Treasuries fast enough to avoid default on short-term debt. That's a liquidity problem, as you say yourself, unrelated to rates, no? EDIT: ah, you're refuting the notion that treasuries are safer than cash. Again, though, you could call that a liquidity problem - if you have loads of cash deposited with a local bank, you might not be able to withdraw it all at once, either. [1] https://data.worldbank.org/indicator/FR.INR.RINR?end=2016&locations=US&start=1961 https://data.worldbank.org/indicator/FR.INR.RINR?end=2016&lo... [2] https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll https://www.treasury.gov/resource-center/data-chart-center/i... [3] http://awealthofcommonsense.com/2015/12/a-history-of-real-interest-rates/ http://awealthofcommonsense.com/2015/12/a-history-of-real-in...
FabHK 9y ago
That people spend less when they have deflationary expectation is not only a fancy theory, but a fancy theory combined with empirical fact. Read about Japan's lost decade. (Of course it's not going to be a problem with crypto anytime soon, because nobody measures their wealth in crypto, because nothing is denominated in crypto.) The other problem with deflation is that it increases the real value of debt, making it harder for companies/borrowers to repay their debt. Thus, it also tends to increase inequality (rewarding savers, punishing borrowers).
nerdponx 9y ago
There isn't "no incentive" to spend your money. But there is a non-trivial incentive to not-spend it. Consumption is surprisingly flexible in these cases. How often do you "need" a house, right now? Just look at all the data out there on how home-buying patterns are changing. Now compound the issue: you can choose your medium of exchange. Currency A is inflationary (you want to spend it as fast as possible, because it's decreasing in value) and Currency B is deflationary (you want to hold it, because it's increasing in value). You currently hold both A and B. Which do you use for your day-to-day spending? On an unrelated note, it's a shame that "trust me, I'm an economist" holds no weight nowadays. Nobody except a crank would dismiss a biologist talking about biology because they didn't see a "satisfactory reason" for something. Economists really screwed up their reputation over the last 50 years.
- Klathmon 9y ago
  >Consumption is surprisingly flexible in these cases. How often do you "need" a house, right now? Just look at all the data out there on how home-buying patterns are changing. I'd argue that a reduction in our consumption might not be a bad thing. Yes, on a shorter scale it can cause some harm, however we are on a planet with limited resources, and incentivizing saving over consumption might have massive benefits if done correctly. >You currently hold both A and B. Which do you use for your day-to-day spending? If you ignore the benefits that a decentralized cryptocurrency provides, currency A would be the choice. However if you include those benefits (no "gatekeeper" telling you who or what you can spend your money with or on, no ability to "charge back" any money, no trust needed to transact, and an audit-able "paper trail" which cannot be altered), then there are a significant number of transactions where I'd rather use B. Paying for "subscription" services without fear of being continually charged after I stop wanting the service, receiving donations for work without fear that chargebacks will cause me to owe more than I received, buying goods and services that a company or government may not approve of, sending money quickly and cheaply across political boundaries (ignoring that bitcoin is failing here right now in many ways), and more are all very huge benefits that (at least for me) overshadow the fact that my bitcoin might be more valuable tomorrow than they are today. >On an unrelated note, it's a shame that "trust me, I'm an economist" holds no weight nowadays. Its extremely difficult to experiment on "the economy" by its nature, and because of that it is difficult to get hard evidence of the effects that specific things have on an economy. At best they can make educated guesses, but with something that complex I think it's naive to think that anyone fully understands the cause and effect relationships at play. All social sciences share this problem, and it's why they all get similar amounts of distrust and cargo culting.

JumpCrisscross 9y ago

> There exist markets that you can put your money in and make more than inflation reliably No, there don't. Even holding U.S. Treasuries is riskier than holding cash. > bitcoin as it currently stands isn't going to cause a massive collapse of the economy Nobody is saying that. What it has done is cause a collapse of the Bitcoin economy, i.e. the markets for real goods and services denominated in Bitcoin. If you think Bitcoin will go up 50% next week, you aren't going to use it to buy a cup of coffee. You'll use U.S. dollars, which will be worth a little less (albeit, probably, imperceptibly so) by then [1]. [1] https://en.wikipedia.org/wiki/Gresham%27s_law https://en.wikipedia.org/wiki/Gresham%27s_law

Klathmon 9y ago
>What it has done is cause a collapse of the Bitcoin economy, i.e. the markets for real goods and services denominated in Bitcoin. Bitcoin has been extremely volatile it's entire existence, and yet many merchants adopted it as a payment method. I'll say it again, it's not "deflation" that's causing the collapse of bitcoin (although I'd argue it's not collapsing right now, but just struggling), it's the fact that a blockchain cannot scale at this time. Steam used bitcoin for years successfully, and only recently had to stop because of transaction fees. Microsoft used bitcoin for years happily, and only recently had to stop because of transaction fees. All of these companies that are no longer using bitcoin, cite transaction fees as the reason, not the "eventually deflationary" nature of it (which was always the case, even when they started using it). The blockchain as an idea cannot handle this kind of scale, and until that problem is solved, all decentralized cryptocurrencies will fail to get past this hard wall, whether deflationary or inflationary. Luckily there are many bright people working on this problem, both in bitcoin and in other altcoins, and I have hope that it will soon be solved, but until then cryptocurrencies will struggle to reach mass adoption.
- JumpCrisscross 9y ago
  > it's not "deflation" that's causing the collapse of bitcoin (although I'd argue it's not collapsing right now, but just struggling), it's the fact that a blockchain cannot scale at this time I agree. I'm only refuting the argument that Bitcoin is not deflationary.
  - Klathmon 9y ago
    But by that definition bitcoin is inflationary depending on where you draw the lines. There was a period of about 3 years where bitcoin's value was dropping every day, and just this weekend it dropped 10-20%. How can "deflation" be a useful definition if it can apply or not depending on the ever changing value of an asset? or even what you compare the value against.
    - JumpCrisscross 9y ago
      > How can "deflation" be a useful definition if it can apply or not depending on the ever changing value of an asset? I responded to this question elsewhere [1]. TL; DR Economies can change modes. The American economy was hyper inflationary in the 1970s, then deflationary in the early 1980s and the flipped back to a long-run trend growth of inflation until the dot-com bust. The gold standard for measuring price level changes is to measure actual prices. The inscrutability of the Bitcoin economy forces the use of proxy metrics, e.g. the exchange rate between U.S. dollars and Bitcoins. This is appropriate given the entire legitimate Bitcoin economy is a subset of the U.S. dollar economy, with prices in Bitcoin often being pegged to an implied U.S. dollar price. [1] https://news.ycombinator.com/item?id=16097280 https://news.ycombinator.com/item?id=16097280
      - Klathmon 9y ago
        Fair enough. I still disagree that bitcoin being eventually limited in supply is a bad thing, but it appears that I have misunderstood the meaning of inflation and deflation, and I struggle to understand why the definition as you described it is useful. >This is appropriate given the entire legitimate Bitcoin economy is a subset of the U.S. dollar economy, with prices in Bitcoin often being pegged to an implied U.S. dollar price. I think this is a consequence of our language and location, as bitcoin is a global asset and therefore gets pegged against many other currencies across the planet. Still, I understand your point, and I appreciate the discussion!
FabHK 9y ago
I'd say that risk-free real rates have actually been positive almost always, so what GP says is right. Holding US Treasuries is risk less for all practical purposes (your cash can be stolen).
- JumpCrisscross 9y ago
  > risk-free real rates have actually been positive almost always No, they haven't [1]. The U.S. Treasury issues inflation-indexed bonds [2]. Their rates have gone negative, from time to time. In the financial crisis there were non-bank institutions who couldn't find a buyer for their Treasuries fast enough to avoid default on short-term debt. The paranoid fucks who held cash out-survived those who accepted the liquidity risk of holding Treasuries over cash for anyone who (a) doesn't have access to the Federal Reserve discount window [3] and (b) hasn't ensured all their time-sensitive payment terms allow for settlement with Treasuries. [1] https://fred.stlouisfed.org/series/DFII10 https://fred.stlouisfed.org/series/DFII10 [2] https://en.wikipedia.org/wiki/United_States_Treasury_security#TIPS https://en.wikipedia.org/wiki/United_States_Treasury_securit... [3] https://en.wikipedia.org/wiki/Discount_window https://en.wikipedia.org/wiki/Discount_window
  - FabHK 9y ago
    > Their rates have gone negative, from time to time. Nobody disputes that occasionally, real rates have turned negative (Great depression, 1970's, or after the GFC 2011-2013 in the USA, with some countries in Europe even having negative nominal rates). However, predominantly real rates are positive [1, 2, 3 or even your 1], and some of the earlier episodes were arguably caused by the gold standard. > non-bank institutions who couldn't find a buyer for their Treasuries fast enough to avoid default on short-term debt. That's a liquidity problem, as you say yourself, unrelated to rates, no? EDIT: ah, you're refuting the notion that treasuries are safer than cash. Again, though, you could call that a liquidity problem - if you have loads of cash deposited with a local bank, you might not be able to withdraw it all at once, either. [1] https://data.worldbank.org/indicator/FR.INR.RINR?end=2016&locations=US&start=1961 https://data.worldbank.org/indicator/FR.INR.RINR?end=2016&lo... [2] https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll https://www.treasury.gov/resource-center/data-chart-center/i... [3] http://awealthofcommonsense.com/2015/12/a-history-of-real-interest-rates/ http://awealthofcommonsense.com/2015/12/a-history-of-real-in...

FabHK 9y ago

That people spend less when they have deflationary expectation is not only a fancy theory, but a fancy theory combined with empirical fact. Read about Japan's lost decade. (Of course it's not going to be a problem with crypto anytime soon, because nobody measures their wealth in crypto, because nothing is denominated in crypto.) The other problem with deflation is that it increases the real value of debt, making it harder for companies/borrowers to repay their debt. Thus, it also tends to increase inequality (rewarding savers, punishing borrowers).

nerdponx 9y ago

There isn't "no incentive" to spend your money. But there is a non-trivial incentive to not-spend it. Consumption is surprisingly flexible in these cases. How often do you "need" a house, right now? Just look at all the data out there on how home-buying patterns are changing. Now compound the issue: you can choose your medium of exchange. Currency A is inflationary (you want to spend it as fast as possible, because it's decreasing in value) and Currency B is deflationary (you want to hold it, because it's increasing in value). You currently hold both A and B. Which do you use for your day-to-day spending? On an unrelated note, it's a shame that "trust me, I'm an economist" holds no weight nowadays. Nobody except a crank would dismiss a biologist talking about biology because they didn't see a "satisfactory reason" for something. Economists really screwed up their reputation over the last 50 years.

Klathmon 9y ago
>Consumption is surprisingly flexible in these cases. How often do you "need" a house, right now? Just look at all the data out there on how home-buying patterns are changing. I'd argue that a reduction in our consumption might not be a bad thing. Yes, on a shorter scale it can cause some harm, however we are on a planet with limited resources, and incentivizing saving over consumption might have massive benefits if done correctly. >You currently hold both A and B. Which do you use for your day-to-day spending? If you ignore the benefits that a decentralized cryptocurrency provides, currency A would be the choice. However if you include those benefits (no "gatekeeper" telling you who or what you can spend your money with or on, no ability to "charge back" any money, no trust needed to transact, and an audit-able "paper trail" which cannot be altered), then there are a significant number of transactions where I'd rather use B. Paying for "subscription" services without fear of being continually charged after I stop wanting the service, receiving donations for work without fear that chargebacks will cause me to owe more than I received, buying goods and services that a company or government may not approve of, sending money quickly and cheaply across political boundaries (ignoring that bitcoin is failing here right now in many ways), and more are all very huge benefits that (at least for me) overshadow the fact that my bitcoin might be more valuable tomorrow than they are today. >On an unrelated note, it's a shame that "trust me, I'm an economist" holds no weight nowadays. Its extremely difficult to experiment on "the economy" by its nature, and because of that it is difficult to get hard evidence of the effects that specific things have on an economy. At best they can make educated guesses, but with something that complex I think it's naive to think that anyone fully understands the cause and effect relationships at play. All social sciences share this problem, and it's why they all get similar amounts of distrust and cargo culting.