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With an inflationary currency, you can pay your workers nominally slightly more each year while paying them the same amount or even slightly less in real terms.

With an inflationary currency, you can pay your workers nominally slightly more each year while paying them the same amount or even slightly less in real terms. With a deflationary currency, you can pay your workers nominally slightly less each year while paying them the same or even slightly more in real terms. How would the average person on the street react to being told "You've performed really well this year, so we're only going to decrease your salary by 1%. Congratulations on your raise!"?

JumpCrisscross 14y ago
That would seem to be the case à la Fisher. But the evidence from Japan, a slowly, albeit steadily, deflating advanced economy is compelling. From January 1995 to January 2010, Japan's CPI (2005=100) has fallen from 100.8797 to 99.5851, or or -0.08% per year. In that time, real wages grew 0.23% [1]. Real GDP/capita at 0.61%. Hell, from 2010 to 2013 their CPI has fallen at 0.27% annually, but the hit has been mixed. Note that the Japanese monetary base (M2) has expanded at 2.5% annually from 1995 to 2010, so this is a demand-driven deflation, consistent with Morana. But the deflation we base our analysis on, the Great Depression, was similarly spurred by demand. Similarly, Germany, through the Hartz reforms, engineered a wage deflation at the beginning of this century. Helping power the American recovery is wage deflation. The hope is austerity, structural re-alignment through deflation, will similarly fix peripheral Europe's bloated labour costs. Yes, it appears people will take falling wages if forced. All this said, I do not believe a deflating national currency is the right model for Bitcoin. Instead, look to arguments levied as the world switched off gold, an international deflationary currency, to inflationary fiat ones. [1] Own calculations from St. Louis Federal Reserve Economic Database
- NkVczPkybiXICG 14y ago
  Bitcoin isn't that deflationary, and won't be at all until 2140. When 2140 comes around, and all the bitcoin is mined, then it will only deflate at the rate which coin is "lost into the ether" from people losing their wallets, etc. I highly doubt the deflation rate will be anywhere near 1%.
  - JumpCrisscross 14y ago
    Bitcoins are already rapidly deflating. The purchasing power of a Bitcoin today is a multiple of what it was a year ago. You can see this in its rapidly appreciating exchange value vis-à-vis the U.S. dollar.

JumpCrisscross 14y ago

That would seem to be the case à la Fisher. But the evidence from Japan, a slowly, albeit steadily, deflating advanced economy is compelling. From January 1995 to January 2010, Japan's CPI (2005=100) has fallen from 100.8797 to 99.5851, or or -0.08% per year. In that time, real wages grew 0.23% [1]. Real GDP/capita at 0.61%. Hell, from 2010 to 2013 their CPI has fallen at 0.27% annually, but the hit has been mixed. Note that the Japanese monetary base (M2) has expanded at 2.5% annually from 1995 to 2010, so this is a demand-driven deflation, consistent with Morana. But the deflation we base our analysis on, the Great Depression, was similarly spurred by demand. Similarly, Germany, through the Hartz reforms, engineered a wage deflation at the beginning of this century. Helping power the American recovery is wage deflation. The hope is austerity, structural re-alignment through deflation, will similarly fix peripheral Europe's bloated labour costs. Yes, it appears people will take falling wages if forced. All this said, I do not believe a deflating national currency is the right model for Bitcoin. Instead, look to arguments levied as the world switched off gold, an international deflationary currency, to inflationary fiat ones. [1] Own calculations from St. Louis Federal Reserve Economic Database

NkVczPkybiXICG 14y ago
Bitcoin isn't that deflationary, and won't be at all until 2140. When 2140 comes around, and all the bitcoin is mined, then it will only deflate at the rate which coin is "lost into the ether" from people losing their wallets, etc. I highly doubt the deflation rate will be anywhere near 1%.
- JumpCrisscross 14y ago
  Bitcoins are already rapidly deflating. The purchasing power of a Bitcoin today is a multiple of what it was a year ago. You can see this in its rapidly appreciating exchange value vis-à-vis the U.S. dollar.