8 ms·

That is yet another feature which is mistaken by crypto advocates for a bug. The 2% per annum is deliberate and useful; it means you have economic incentive to

by tbabb 8y ago

That is yet another feature which is mistaken by crypto advocates for a bug. The 2% per annum is deliberate and useful; it means you have economic incentive to put your wealth to work on creating things-- new businesses, technology, public infrastructure-- by investing it, rather than passively sitting on it. Imagine the reverse: a deflationary currency, which becomes more valuable over time. You would have little choice but to hold on to your wealth to avoid missing out on the gains. Why would you spend your money building a business or hiring workers? That would be a losing proposition compared to keeping a bank account which grows if it just sits there. Deflationary circumstances were, in fact, what precipitated the great depression. 2% is a gentle nudge to participate in the economy. This is addressed and elucidated in the linked article.

jhoechtl 8y ago
> The 2% per annum is deliberate and useful; it means you have economic incentive to put your wealth to work on creating things-- new businesses, technology, public infrastructure-- by investing it, rather than passively sitting on it. I think that's what the child poster meant by bug. It's artificial and still: Why? Mankind came to what it is 99.9% of time without artificial devaluation.
- TomVDB 8y ago
  > Mankind came to what it is 99.9% of time without artificial devaluation. Mankind came to what it is 99.999% of time without antibiotics too. Arguments like this are rarely constructive.
- bildung 8y ago
  > Mankind came to what it is 99.9% of time without artificial devaluation. Because productivity was practically constant for this 99.9% of human history. Therefore the monetary base could be practically constant, too. With the industrial revolution, growth became obviously exponential. Have a look at the following graph (nominal GDP): http://3.bp.blogspot.com/_VO-2HbQsbSU/S9BbLF6MxBI/AAAAAAAAARw/ctyCSuzVJdA/s1600/PubDebtGDP.bmp http://3.bp.blogspot.com/_VO-2HbQsbSU/S9BbLF6MxBI/AAAAAAAAAR... Or this one (real gdp): https://ourworldindata.org/uploads/2013/11/GDP-per-capita-in-the-uk-since-1270.png https://ourworldindata.org/uploads/2013/11/GDP-per-capita-in... Inflation means the value of money stays coupled to the changes in GDP, just as in the millenia you apparently value for exactly this constant money <> gdp relationship.
- dTal 8y ago
  No, we had natural devaluation. Most resources, hoarded away, will spoil. Everything has an expiry date, even social capital - do me a favour today, and I might return the favour tomorrow. But by next year I'll have forgotten about it. It makes sense, really. Why should finding a old penny under the floorboards, nearly worthless when it was minted, make you rich?
nostrademons 8y ago
"Imagine the reverse: a deflationary currency, which becomes more valuable over time." This describes the U.S. dollar from 1870-1890, but this was hardly a time of economic and technological stagnation: https://en.wikipedia.org/wiki/The_Great_Deflation https://en.wikipedia.org/wiki/The_Great_Deflation https://en.wikipedia.org/wiki/Second_Industrial_Revolution https://en.wikipedia.org/wiki/Second_Industrial_Revolution Far from people holding on to their wealth to avoid missing out on the gains, they invested it heavily to avoid missing out on even bigger gains from being part of the technological revolution happening around them. Deflation was then a consequence (rather than a cause) of the economic growth that followed: with a constant money supply but more goods available for purchase, the price per good steadily fell.
- AnthonyMouse 8y ago
  So if you have an economy which is naturally growing very rapidly for independent reasons (e.g. because there is an industrial revolution happening) then it can outpace the deflation. But you still have some people hoarding currency because some people have different levels of risk tolerance. One person is willing to build a factory at great risk because there is even greater reward. Another person says give me the steady returns from hoarding deflationary currency. Getting rid of those returns pushes that person back into the market, requiring them to do something productive with their money instead of just sitting on it. Which is all the more important when there are many productive things to do with it. So the deflation caused growth to be less than it would have, e.g. 15% instead of 20% (in real terms), even if it wasn't enough to turn negative. But it was still a reduction. And what happens when the economy is only growing at a normal pace and you introduce a deflationary currency?
  - nostrademons 8y ago
    In practice what tends to happen is that debtors are incentivized to start using alternative currencies because their debt load becomes unbearable otherwise, and then the inflationary currencies drive the deflationary ones out of circulation through Gresham's Law [1]. Hoarders end up holding useless tokens that are eventually demonetized entirely. The gold-backed dollars of 1873 suffered this attack in two waves. The first was the Free Silver movement of 1892 [2], which sought to allow free coinage of silver currency as a way to create inflation and lower debt burdens for poor farmers who were being exploited by the Northeast's industrial-financial establishment (sound familiar?). This ultimately failed, although it did manage to inspire The Wizard of Oz [3]. The second was the steady inflation of Federal Reserve Notes (i.e. the dollar) from 1914 onwards. This culminated in EO 6102 [4], which made it a crime to privately own significant quantities of gold. Someone who faithfully hoarded gold coins from 1873 onwards would've done great until 1900, okay until WW1 ended, found themselves in the odd position of having money that was worth more on the black market than as legal tender (much like American Eagle gold coins have a face value of $50 today but a market value of about $1200), and then been forced to turn in their gold coins for their face value (effectively confiscating their assets at a loss) in 1933. [1] https://en.wikipedia.org/wiki/Gresham%27s_law https://en.wikipedia.org/wiki/Gresham%27s_law [2] https://en.wikipedia.org/wiki/Free_silver https://en.wikipedia.org/wiki/Free_silver [3] https://en.wikipedia.org/wiki/Political_interpretations_of_The_Wonderful_Wizard_of_Oz https://en.wikipedia.org/wiki/Political_interpretations_of_T... [4] https://en.wikipedia.org/wiki/Executive_Order_6102 https://en.wikipedia.org/wiki/Executive_Order_6102
roenxi 8y ago
>That is yet another feature which is mistaken by crypto advocates for a bug. Whether it is a bug or a feature depends on whether it favours you or not. Anyone who owns assets and pays wages would think it is Christmas every day of the year. If nothing changes, they draw ahead without needing to do anything. > Imagine the reverse: a deflationary currency, which becomes more valuable over time. You would have little choice but ... No, I'd do exactly what I do now and invest the money in things that grow faster than the value of the currency. Nobody would care that the currency is deflating at 2% p.a. if there is 5% to make in the stock market. The value of having a consistent measuring stick to figure out what is going on without constantly having to twiddle numbers for inflation would be a remarkable boon. > Why would you spend your money building a business or hiring workers? That one is an easy one, because people generally value present consumption and would give you money in exchange for goods and services. As a business owner you have a chance of ending up with more money than you started with.
jerguismi 8y ago
Why not have inflation at 10% to have even better "nudge" for people to work? You are essentially communicating the same thing that the crypto nerds are saying, just from a different angle. The individual pays the 2% "nudge", and crypto people don't prefer paying that, and that's why they use crypto. Whether it is good for society or not is irrelevant in the individuals context.
- ForHackernews 8y ago
  > The individual pays the 2% "nudge", Only if you a) keep your money in cash under your mattress and b) aren't also benefiting from having your debts reduced by inflation. It's very simplistic to say that (low, predictable) inflation hurts individuals.
  - aserafini 8y ago
    Even if you are investing your cash ‘productively’ and keeping none under your mattress you are still paying the 2% nudge as your returns are partially eaten by inflation. It just reduces investment returns in real terms, investment does not make the cost of inflation disappear. This affects poorest members of society disproportionately because they don’t have spare capital to allocate in order to offset their loss from inflation. They just pay higher prices.
    - ForHackernews 8y ago
      The poorest members of society are disproportionately indebted and so they will disproportionately benefit from having those debts reduced by inflation.
      - aserafini 8y ago
        The poorest members of society are not disproportionately indebted: they don’t have mortgages or student loans like the middle class.
        8y ago
dnautics 8y ago
> it means you have economic incentive to put your wealth to work on creating things-- new businesses, technology, public infrastructure-- by investing it, rather than passively sitting on it. Reading between the lines, "it means your money is going to go to fund the activities of the rich". Perhaps we shouldn't be surprised that the delta between the working class's wages and productivity has been increasing since the Nixon shock.

by tbabb 8y ago

jhoechtl 8y ago

> The 2% per annum is deliberate and useful; it means you have economic incentive to put your wealth to work on creating things-- new businesses, technology, public infrastructure-- by investing it, rather than passively sitting on it. I think that's what the child poster meant by bug. It's artificial and still: Why? Mankind came to what it is 99.9% of time without artificial devaluation.

TomVDB 8y ago
> Mankind came to what it is 99.9% of time without artificial devaluation. Mankind came to what it is 99.999% of time without antibiotics too. Arguments like this are rarely constructive.
bildung 8y ago
> Mankind came to what it is 99.9% of time without artificial devaluation. Because productivity was practically constant for this 99.9% of human history. Therefore the monetary base could be practically constant, too. With the industrial revolution, growth became obviously exponential. Have a look at the following graph (nominal GDP): http://3.bp.blogspot.com/_VO-2HbQsbSU/S9BbLF6MxBI/AAAAAAAAARw/ctyCSuzVJdA/s1600/PubDebtGDP.bmp http://3.bp.blogspot.com/_VO-2HbQsbSU/S9BbLF6MxBI/AAAAAAAAAR... Or this one (real gdp): https://ourworldindata.org/uploads/2013/11/GDP-per-capita-in-the-uk-since-1270.png https://ourworldindata.org/uploads/2013/11/GDP-per-capita-in... Inflation means the value of money stays coupled to the changes in GDP, just as in the millenia you apparently value for exactly this constant money <> gdp relationship.
dTal 8y ago
No, we had natural devaluation. Most resources, hoarded away, will spoil. Everything has an expiry date, even social capital - do me a favour today, and I might return the favour tomorrow. But by next year I'll have forgotten about it. It makes sense, really. Why should finding a old penny under the floorboards, nearly worthless when it was minted, make you rich?

nostrademons 8y ago

"Imagine the reverse: a deflationary currency, which becomes more valuable over time." This describes the U.S. dollar from 1870-1890, but this was hardly a time of economic and technological stagnation: https://en.wikipedia.org/wiki/The_Great_Deflation https://en.wikipedia.org/wiki/The_Great_Deflation https://en.wikipedia.org/wiki/Second_Industrial_Revolution https://en.wikipedia.org/wiki/Second_Industrial_Revolution Far from people holding on to their wealth to avoid missing out on the gains, they invested it heavily to avoid missing out on even bigger gains from being part of the technological revolution happening around them. Deflation was then a consequence (rather than a cause) of the economic growth that followed: with a constant money supply but more goods available for purchase, the price per good steadily fell.

AnthonyMouse 8y ago
So if you have an economy which is naturally growing very rapidly for independent reasons (e.g. because there is an industrial revolution happening) then it can outpace the deflation. But you still have some people hoarding currency because some people have different levels of risk tolerance. One person is willing to build a factory at great risk because there is even greater reward. Another person says give me the steady returns from hoarding deflationary currency. Getting rid of those returns pushes that person back into the market, requiring them to do something productive with their money instead of just sitting on it. Which is all the more important when there are many productive things to do with it. So the deflation caused growth to be less than it would have, e.g. 15% instead of 20% (in real terms), even if it wasn't enough to turn negative. But it was still a reduction. And what happens when the economy is only growing at a normal pace and you introduce a deflationary currency?
- nostrademons 8y ago
  In practice what tends to happen is that debtors are incentivized to start using alternative currencies because their debt load becomes unbearable otherwise, and then the inflationary currencies drive the deflationary ones out of circulation through Gresham's Law [1]. Hoarders end up holding useless tokens that are eventually demonetized entirely. The gold-backed dollars of 1873 suffered this attack in two waves. The first was the Free Silver movement of 1892 [2], which sought to allow free coinage of silver currency as a way to create inflation and lower debt burdens for poor farmers who were being exploited by the Northeast's industrial-financial establishment (sound familiar?). This ultimately failed, although it did manage to inspire The Wizard of Oz [3]. The second was the steady inflation of Federal Reserve Notes (i.e. the dollar) from 1914 onwards. This culminated in EO 6102 [4], which made it a crime to privately own significant quantities of gold. Someone who faithfully hoarded gold coins from 1873 onwards would've done great until 1900, okay until WW1 ended, found themselves in the odd position of having money that was worth more on the black market than as legal tender (much like American Eagle gold coins have a face value of $50 today but a market value of about $1200), and then been forced to turn in their gold coins for their face value (effectively confiscating their assets at a loss) in 1933. [1] https://en.wikipedia.org/wiki/Gresham%27s_law https://en.wikipedia.org/wiki/Gresham%27s_law [2] https://en.wikipedia.org/wiki/Free_silver https://en.wikipedia.org/wiki/Free_silver [3] https://en.wikipedia.org/wiki/Political_interpretations_of_The_Wonderful_Wizard_of_Oz https://en.wikipedia.org/wiki/Political_interpretations_of_T... [4] https://en.wikipedia.org/wiki/Executive_Order_6102 https://en.wikipedia.org/wiki/Executive_Order_6102

roenxi 8y ago

>That is yet another feature which is mistaken by crypto advocates for a bug. Whether it is a bug or a feature depends on whether it favours you or not. Anyone who owns assets and pays wages would think it is Christmas every day of the year. If nothing changes, they draw ahead without needing to do anything. > Imagine the reverse: a deflationary currency, which becomes more valuable over time. You would have little choice but ... No, I'd do exactly what I do now and invest the money in things that grow faster than the value of the currency. Nobody would care that the currency is deflating at 2% p.a. if there is 5% to make in the stock market. The value of having a consistent measuring stick to figure out what is going on without constantly having to twiddle numbers for inflation would be a remarkable boon. > Why would you spend your money building a business or hiring workers? That one is an easy one, because people generally value present consumption and would give you money in exchange for goods and services. As a business owner you have a chance of ending up with more money than you started with.

jerguismi 8y ago

Why not have inflation at 10% to have even better "nudge" for people to work? You are essentially communicating the same thing that the crypto nerds are saying, just from a different angle. The individual pays the 2% "nudge", and crypto people don't prefer paying that, and that's why they use crypto. Whether it is good for society or not is irrelevant in the individuals context.

ForHackernews 8y ago
> The individual pays the 2% "nudge", Only if you a) keep your money in cash under your mattress and b) aren't also benefiting from having your debts reduced by inflation. It's very simplistic to say that (low, predictable) inflation hurts individuals.
- aserafini 8y ago
  Even if you are investing your cash ‘productively’ and keeping none under your mattress you are still paying the 2% nudge as your returns are partially eaten by inflation. It just reduces investment returns in real terms, investment does not make the cost of inflation disappear. This affects poorest members of society disproportionately because they don’t have spare capital to allocate in order to offset their loss from inflation. They just pay higher prices.
  - ForHackernews 8y ago
    The poorest members of society are disproportionately indebted and so they will disproportionately benefit from having those debts reduced by inflation.
    - aserafini 8y ago
      The poorest members of society are not disproportionately indebted: they don’t have mortgages or student loans like the middle class.
      - 8y ago

dnautics 8y ago

> it means you have economic incentive to put your wealth to work on creating things-- new businesses, technology, public infrastructure-- by investing it, rather than passively sitting on it. Reading between the lines, "it means your money is going to go to fund the activities of the rich". Perhaps we shouldn't be surprised that the delta between the working class's wages and productivity has been increasing since the Nixon shock.