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It's not a problem even if your economy only has Bitcoin. Deflation is not a problem.

by snitko 13y ago

kybernetikos 13y ago
I know you think that because I read your blog post, however the limited amount of knowledge I have on the subject suggests that it can be a pretty bad problem. Deflation is regressive - it harms those who need to spend the most and leads to concentration of capital at the expense of labour. It punishes those with debt, which will make it difficult for normal people to ever acquire large capital goods e.g. a house (by the way your argument that lenders won't mind negative interest rates because their final value is worth more than what they started with is wrong because it doesn't take into account opportunity cost - lenders compare the returns not against the current value of their holdings, but against their other options e.g. putting the money in a hole). It reduces the velocity of money and therefore economic output. You say that at least it redirects it to the areas that are most important, which may be true, but nevertheless, it shrinks the pie from which we all partake, and reduces the rate of growth, a problem in a world with a growing population. Bitcoin would also suffer from similar problems to gold in that in bad economic times, all the capital needed to recover would flee the regions suffering, making any recovery much more difficult.
- snitko 13y ago
  With an inflationary currency all those wonderful things you describe that allegedly help recovery are actually done at the expense of those who save. When you say "deflation punishes those who are in debt" I raise you "inflation punishes those, who save". Now why do you believe being in debt is somehow more noble than saving? I beg to disagree. Also, remember, borrowers, if they really need to borrow, may decide to only borrow from those who account for estimated deflation, so that they would be able to pay back. It's just an accounting trick really. Deflation only punishes unsmart people who mindlessly seek for deals that don't account for the changes in the economy. Inflation punishes people who didn't want any kind of deal and simply had their money saved somewhere. > It reduces the velocity of money and therefore economic output You would have to explain how exactly this happens. Output != value. If you dig holes or build cars no one buys you increase output, but you don't add value to the economy.
  - kybernetikos 13y ago
    There's a lot that can be said on this topic (I'm even tempted to make the argument that borrowing is indeed, in most cases, more noble than saving), but I just want to pick you up on one point. When you say 'save', it's not clear whether you're talking about hoarding (where the money is no longer doing anything useful in the economy) or investing (where the money is still part of the economy). Inflation doesn't punish those whose savings are invested, in fact it rewards them, it does however punish those whose savings are hoarded.
    - snitko 13y ago
      I talk about hoarding and there's nothing wrong with that. If you want a new house or a new car, I think saving money until you have enough is a much nobler way to do it. When you say that "money should work and do something useful in the economy" what you're actually saying is that they should work "now". Hoarder's money will work just the same when he decides to spend them. Thus, what you have to discuss here is not hoarding, but rather "spending now" vs "spending later". Why do you think the former is superior to the latter?
- snitko 13y ago
  More interestingly, deflation is an ultimate rich tax. If someone makes money in the economy he automatically shares it with everyone else, even with the poorest guy who only has 1btc on his wallet. You don't need IRS or any other agency to come and collect it. It just happens naturally.
  - XorNot 13y ago
    No it's the exact opposite. It's a poor tax. Deflation means no new money that doesn't come from someone else's stash. Which means the money can only come from the rich. Except, the rich's money is increasing in value. So they spend proportionally less and less of their true wealth, while creating no value, to buy the necessities of life from the poor. And the poor, despite producing real value (food, cars, yachts, factories), no matter how hard they work, can never be wealthier then the established rich. It's social stratification by absolutes, fortunately it usually doesn't last since the disenfranchised 99% by definition outnumber the 1%.

It's not a problem even if your economy only has Bitcoin. Deflation is not a problem.

by snitko 13y ago

It's not a problem even if your economy only has Bitcoin. Deflation is not a problem.

I know you think that because I read your blog post, however the limited amount of knowledge I have on the subject suggests that it can be a pretty bad problem. Deflation is regressive - it harms those who need to spend the most and leads to concentration of capital at the expense of labour. It punishes those with debt, which will make it difficult for normal people to ever acquire large capital goods e.g. a house (by the way your argument that lenders won't mind negative interest rates because their final value is worth more than what they started with is wrong because it doesn't take into account opportunity cost - lenders compare the returns not against the current value of their holdings, but against their other options e.g. putting the money in a hole). It reduces the velocity of money and therefore economic output. You say that at least it redirects it to the areas that are most important, which may be true, but nevertheless, it shrinks the pie from which we all partake, and reduces the rate of growth, a problem in a world with a growing population. Bitcoin would also suffer from similar problems to gold in that in bad economic times, all the capital needed to recover would flee the regions suffering, making any recovery much more difficult.

snitko 13y ago
With an inflationary currency all those wonderful things you describe that allegedly help recovery are actually done at the expense of those who save. When you say "deflation punishes those who are in debt" I raise you "inflation punishes those, who save". Now why do you believe being in debt is somehow more noble than saving? I beg to disagree. Also, remember, borrowers, if they really need to borrow, may decide to only borrow from those who account for estimated deflation, so that they would be able to pay back. It's just an accounting trick really. Deflation only punishes unsmart people who mindlessly seek for deals that don't account for the changes in the economy. Inflation punishes people who didn't want any kind of deal and simply had their money saved somewhere. > It reduces the velocity of money and therefore economic output You would have to explain how exactly this happens. Output != value. If you dig holes or build cars no one buys you increase output, but you don't add value to the economy.
- kybernetikos 13y ago
  There's a lot that can be said on this topic (I'm even tempted to make the argument that borrowing is indeed, in most cases, more noble than saving), but I just want to pick you up on one point. When you say 'save', it's not clear whether you're talking about hoarding (where the money is no longer doing anything useful in the economy) or investing (where the money is still part of the economy). Inflation doesn't punish those whose savings are invested, in fact it rewards them, it does however punish those whose savings are hoarded.
  - snitko 13y ago
    I talk about hoarding and there's nothing wrong with that. If you want a new house or a new car, I think saving money until you have enough is a much nobler way to do it. When you say that "money should work and do something useful in the economy" what you're actually saying is that they should work "now". Hoarder's money will work just the same when he decides to spend them. Thus, what you have to discuss here is not hoarding, but rather "spending now" vs "spending later". Why do you think the former is superior to the latter?
snitko 13y ago
More interestingly, deflation is an ultimate rich tax. If someone makes money in the economy he automatically shares it with everyone else, even with the poorest guy who only has 1btc on his wallet. You don't need IRS or any other agency to come and collect it. It just happens naturally.
- XorNot 13y ago
  No it's the exact opposite. It's a poor tax. Deflation means no new money that doesn't come from someone else's stash. Which means the money can only come from the rich. Except, the rich's money is increasing in value. So they spend proportionally less and less of their true wealth, while creating no value, to buy the necessities of life from the poor. And the poor, despite producing real value (food, cars, yachts, factories), no matter how hard they work, can never be wealthier then the established rich. It's social stratification by absolutes, fortunately it usually doesn't last since the disenfranchised 99% by definition outnumber the 1%.