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> why buy something today when it'll be cheaper in a week or a month? Because you need it today? We already see this all the time in subsets of the market whi

> why buy something today when it'll be cheaper in a week or a month? Because you need it today? We already see this all the time in subsets of the market which experience deflating prices. If you wait a year to buy that fancy device you're wanting there will most likely be a better model available at a lower cost. People still buy the current model, though, because there is a cost to waiting which offsets the expected price deflation.

PragmaticPulp 6y ago
It's a different situation when the currency itself is deflationary, not the goods being purchased. Instead of thinking in terms of buying a phone, think of this in terms of capital allocation and investment. Deflationary currencies are designed to accrue value to those who don't use them. An economy built on the idea of incentivizing people to not spend any money is not good at all. Everyone knows about the downsides of excessive inflation, but deflationary spirals are a well-known economic problem. In short: Deflation reduces demands for goods, which causes producers to lower production targets, which causes people to be laid off, which further reduces demand for goods and so on. A hypothetical Bitcoin economy rewards early adopters massively at the expense of newcomers. The current wealth situation is already heavily biased toward older generations, even on an age-adjusted basis (see charts: https://www.wealthmanagement.com/client-relations/illustrating-wealth-gap-between-boomers-and-millennials https://www.wealthmanagement.com/client-relations/illustrati... ). If you think that's bad, just imagine a Bitcoin economy where the underlying financial system accrues wealth to the older holders, at the expense of newcomers to the system. People love Bitcoin because they think they're the ones getting in at the ground floor, getting wealthy at the expense of the new arrivals. The love for Bitcoin would flip very quickly as young people realize they're deeply on the losing end of that deal.
- nybble41 6y ago
  > An economy built on the idea of incentivizing people to not spend any money is not good at all. It's better not to induce anyone to over-spend or under-spend. I would not advocate a deliberately deflationary monetary policy any more than I would advocate a deliberately inflationary one. The supply should remain as constant as possible so as to avoid injecting noise into a very important economic signaling mechanism regarding the dividing line between socially beneficial investment (above-average returns) and malinvestment (below-average returns). Between the two, though, IMHO it's better to err on the side of deflation. It's easier to correct for underconsumption or underinvestment (just start spending or investing more) vs. getting back resources which have already been wasted on unproductive excess consumption or malinvestment. When you inflate the money supply in an attempt to drive people to consume more than they need or else invest in ventures that may or may not actually make a positive contribution to the average rate of return just to avoid being penalized for holding cash you're actively contributing to the destruction of wealth and making everyone collectively worse off. (Though of course not everyone is worse off; those individuals closest to the supply of new money benefit disproportionately from receiving it at pre-inflated rates before it becomes diluted throughout the economy.) "Deflationary spirals" are a well-known economic myth. There is no general correlation between monetary deflation and a shrinking economy, much less a self-destructive feedback loop. Gradual, unforced deflation does not significantly affect the demand for goods—people still need things now, they can't just wait forever for prices to improve—and while nominal wages do obviously decrease over time, nominal prices of consumer goods tend to decrease even faster, resulting in an increase in purchasing power. As opposed to the situation with money supply inflation, where prices tend to rise faster than wages.
  - PragmaticPulp 6y ago
    Bitcoin, as a currency, is deflationary. Bitcoin, as an asset, is wildly inflating. I could buy 1 BTC for $5K not long ago, but now it costs me almost $50K to buy the same exact amount of Bitcoin. Inflation isn't strictly a function of the fed or the supply. Inflation can happen from demand-pull, which is definitely happening in the Bitcoin world. Now that the cryptocurrency cat is out of the bag, the idea of a singular deflationary cryptocurrency only works if you pretend that all of the other cryptocurrencies don't exist. Instead, we're seeing constant supply growth in the cryptocurrency space as new altcoins come online all the time. Even Bitcoin itself has been forked multiple times, effectively increasing the supply (albeit with caveats). I can trivially exchange BTC for BCH, so it doesn't really matter much that they're on different chains now. The idea that cryptocurrency supply is fixed only works if you deliberately ignore all but 1 cryptocurrency.

PragmaticPulp 6y ago

It's a different situation when the currency itself is deflationary, not the goods being purchased. Instead of thinking in terms of buying a phone, think of this in terms of capital allocation and investment. Deflationary currencies are designed to accrue value to those who don't use them. An economy built on the idea of incentivizing people to not spend any money is not good at all. Everyone knows about the downsides of excessive inflation, but deflationary spirals are a well-known economic problem. In short: Deflation reduces demands for goods, which causes producers to lower production targets, which causes people to be laid off, which further reduces demand for goods and so on. A hypothetical Bitcoin economy rewards early adopters massively at the expense of newcomers. The current wealth situation is already heavily biased toward older generations, even on an age-adjusted basis (see charts: https://www.wealthmanagement.com/client-relations/illustrating-wealth-gap-between-boomers-and-millennials https://www.wealthmanagement.com/client-relations/illustrati... ). If you think that's bad, just imagine a Bitcoin economy where the underlying financial system accrues wealth to the older holders, at the expense of newcomers to the system. People love Bitcoin because they think they're the ones getting in at the ground floor, getting wealthy at the expense of the new arrivals. The love for Bitcoin would flip very quickly as young people realize they're deeply on the losing end of that deal.

nybble41 6y ago
> An economy built on the idea of incentivizing people to not spend any money is not good at all. It's better not to induce anyone to over-spend or under-spend. I would not advocate a deliberately deflationary monetary policy any more than I would advocate a deliberately inflationary one. The supply should remain as constant as possible so as to avoid injecting noise into a very important economic signaling mechanism regarding the dividing line between socially beneficial investment (above-average returns) and malinvestment (below-average returns). Between the two, though, IMHO it's better to err on the side of deflation. It's easier to correct for underconsumption or underinvestment (just start spending or investing more) vs. getting back resources which have already been wasted on unproductive excess consumption or malinvestment. When you inflate the money supply in an attempt to drive people to consume more than they need or else invest in ventures that may or may not actually make a positive contribution to the average rate of return just to avoid being penalized for holding cash you're actively contributing to the destruction of wealth and making everyone collectively worse off. (Though of course not everyone is worse off; those individuals closest to the supply of new money benefit disproportionately from receiving it at pre-inflated rates before it becomes diluted throughout the economy.) "Deflationary spirals" are a well-known economic myth. There is no general correlation between monetary deflation and a shrinking economy, much less a self-destructive feedback loop. Gradual, unforced deflation does not significantly affect the demand for goods—people still need things now, they can't just wait forever for prices to improve—and while nominal wages do obviously decrease over time, nominal prices of consumer goods tend to decrease even faster, resulting in an increase in purchasing power. As opposed to the situation with money supply inflation, where prices tend to rise faster than wages.
- PragmaticPulp 6y ago
  Bitcoin, as a currency, is deflationary. Bitcoin, as an asset, is wildly inflating. I could buy 1 BTC for $5K not long ago, but now it costs me almost $50K to buy the same exact amount of Bitcoin. Inflation isn't strictly a function of the fed or the supply. Inflation can happen from demand-pull, which is definitely happening in the Bitcoin world. Now that the cryptocurrency cat is out of the bag, the idea of a singular deflationary cryptocurrency only works if you pretend that all of the other cryptocurrencies don't exist. Instead, we're seeing constant supply growth in the cryptocurrency space as new altcoins come online all the time. Even Bitcoin itself has been forked multiple times, effectively increasing the supply (albeit with caveats). I can trivially exchange BTC for BCH, so it doesn't really matter much that they're on different chains now. The idea that cryptocurrency supply is fixed only works if you deliberately ignore all but 1 cryptocurrency.