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"We don't exists to horde money, but to spend it doing things that we like." Deflation increases the incentive to hoard cash. People respond to incentives. Eco
by natrius 14y ago
"We don't exists to horde money, but to spend it doing things that we like."
Deflation increases the incentive to hoard cash. People respond to incentives. Economies based on deflationary currencies end up suffering from problems caused by this. You may not agree, but pretty much every economist does.
- kiba 14y agoI don't dispute the incentive, I only dispute the preference and the outcome.
- natrius 14y agoSo you're saying that people won't respond to the incentive to hoard cash? An economy based on a currency with low, predictable inflation will have less hoarding than a deflationary currency. Hoarding in itself causes deflation, so deflationary currencies risk causing a deflationary spiral. Do you have an example of a vibrant economy based on a deflationary currency? I have several historical counterexamples.
- mindcrime 14y agoSo you're saying that people won't respond to the incentive to hoard cash? I'm hungry... really f%!#ng hungry, right now. I have $10.00, which - today - buys me 2 hotdogs and a soda. But, if I wait a year, that same $10.00 will buy me a nice steak, some corn chowder, a side of sweet potato fries and a margarita. What do I do? Hmmm....
- natrius 14y agoThat's not how economics works. Sure, some decisions won't be affected by the increased incentive to hoard. However, there are some decisions where the marginal incentive to hoard pushes people over the edge to decide to hoard. Instead of focusing on the sentence of my argument you chose, try disproving the one that followed: "An economy based on a currency with low, predictable inflation will have less hoarding than a deflationary currency."
- mindcrime 14y agoSure, some decisions won't be affected by the increased incentive to hoard. However, there are some decisions where the marginal incentive to hoard pushes people over the edge to decide to hoard. Instead of focusing on the sentence of my argument you chose, try disproving the one that followed: "An economy based on a currency with low, predictable inflation will have less hoarding than a deflationary currency." No doubt... just emphasizing the point that we aren't dealing with absolutes here. People do spend money, even with deflationary currency. I'm not saying deflationary currencies are a good thing, or that there aren't some ramifications. But I think some bitcoin critics overstate the importance of the deflationary aspect, that's all.
- michaelt 14y agoLet's say I own a business importing widgets. If there's inflation of 2%, the stock I hold just became 2% more valuable. If there's deflation of 2%, the stock I hold just became 2% less valuable. In other words, in a deflationary economy there's less incentive to invest in productive activity and more incentive to stash cash under the mattress. And it's not just held stock that works this way - it's also capital investments like that new more efficient widget-making machine.
- r2DEYdly 14y agoHow do you respond to incentive to not buy a new smart phone, because it will probably be cheaper a year from now?
- natrius 14y agoSome people do respond to that incentive. Perhaps a clearer way for me to have made that point was to say, "Incentives affect the decisions that people make."