6 ms·

>> For starters, BTC is inherently deflationary. > For starters, tell us why this is inherently bad. Deflation, by providing a risk free return for sitting on

by JackFr 13y ago

>> For starters, BTC is inherently deflationary. > For starters, tell us why this is inherently bad. Deflation, by providing a risk free return for sitting on currency, leads to a slowdown in the real economy by reducing both output (reduced consumption) and productivity (reduced investment).

icebraining 13y ago
I'm not disagreeing, but is there empirical evidence backing that? My only sources are heavily biased, but they point out that the periods of mild, predictable deflation (like Bitcoin would cause) such as The Great Deflation[1] actually experienced decent growth in real incomes and such. [1] http://en.wikipedia.org/wiki/The_Great_Deflation http://en.wikipedia.org/wiki/The_Great_Deflation
- cma 13y ago
  Plus the price of computation has been dropping in half 18 months for the last 60 years, but people still seem to be buying rather than waiting it out.
- djur 13y ago
  The deflation in the late 19th century wasn't caused by contraction in money supply, though. It was caused by a huge increase in productivity. It's hard to compare that with contractionary monetary policy.
  - JackFr 13y ago
    The repeal of the Silver Purchase Act was pure deflationary monetary policy.
Tycho 13y ago
So a deflationary currency would lead to everyone simply grinding to a halt like those people on the planet in Serenity?
nly 13y ago
Bitcoin is only deflationary if the supply of everything else grows forever. If you look at prices throughout the ages you'll find things haven't always been like they are now[1]. We created the current global monetary system to deal with war debt, globalisation and mind-boggling growth in western prosperity, but there's no reason to believe what we use in 100-200 years will be based on the same principles at all. And no, I'm not saying Bitcoin or a return to the Gold Standard is the future, just that it's foolish to think a currency of limited supply "just doesn't work". At one point, it was completely natural and obvious to everyone that the supply of money was and should be limited. [1] https://philebersole.wordpress.com/2010/11/17/inflation-through-the-ages/ https://philebersole.wordpress.com/2010/11/17/inflation-thro...
- SamReidHughes 13y ago
  > Bitcoin is only deflationary if the supply of everything else grows forever. Right, Bitcoin wouldn't be deflationary if the economy simply stopped growing.
  - baq 13y ago
    fact: people lose bitcoins, which leads to deflation directly when the "economy" (whatever that is) stops growing.
dalek_cannes 13y ago
> Deflation... leads to a slowdown in the real economy A fundamental, but slightly tangential question: is that a bad thing? What if modern societies are running too hot and need to cool down? 'Reduction', 'slowdown', 'productivity loss' -- these are negative in a purely economic context. But economics is a means to an end, not an end in itself. The end, I believe, (to borrow an American term) is the 'pursuit of happiness'. I don't think modern, developed societies are doing very well in that particular pursuit. It feels as if we're on a treadmill -- try to run faster and it turns faster, and you need to keep running faster just to stay on it. This may not apply to developing societies, who are still grappling with the lower layers of Marslow's hierarchy like food, health and education, but doesn't it seem like we have overshot? When we can afford to obsess over the number of cores or dots per inch on a handheld device, I think we can afford to slow down a bit. Perhaps a deflationary economy is just what we need. People shouldn't feel pressured to keep producing despite having ample savings just to keep up with the wealth erosion caused by inflation. /opinion Also: if the Bitcoin unit had been redefined so that the maximum number was 21 quadrillion, we might not have this debate. Nothing's changed fundamentally, but it is a number that for a laymen is a lot closer to infinity than 21 million.
- diminoten 13y ago
  I mean you might be right but we have no clue whatsoever. In our great lab that is the world, we know that deflation leads to Bad Things (TM). I'm no economist, but I don't know of a time in modern history where people were saying, "Thank Christ we're experiencing deflation!"
- a_c_s 13y ago
  A growing economy increases standards of living. The fact that a t-shirt costs $10 now that used to cost $20 10 years ago means that people now have more options. Some people will choose to buy 2x as many t-shirts, making them (roughly) 2x happier. Or some people will buy the same number of t-shirts and have extra money to do other things they want. And most importantly, some people who couldn't afford t-shirts now can. But nobody is forced to chase material goods, they buy what they choose to. The fact that this process is replicated across virtually all products in the economy is what lifts people out of poverty. We still have plenty of people struggling to make ends meet in the USA, something like half of all people live paycheck-to-paycheck. The only people who benefit from deflation are those with large amounts of capital and no debt, which is an incredibly small portion of the population that isn't struggling under the current system of low inflation.
plock 13y ago
>Deflation, by providing a risk free return for sitting on currency How is it 'risk free return'? What guarantee is there that the currency will continue deflating?
lukifer 13y ago
Isn't the buyer's incentive to hoard balanced exactly by the seller's incentive to acquire? If the currency acquires value at a stable rate (a big if), it seems to me that buyers and sellers would meet in the middle. After all, people buy things all the time (cars, computers) that rapidly depreciate compared to leaving cash in a savings account.
dpatru 13y ago
> Deflation, by providing a risk free return for sitting on currency, leads to a slowdown in the real economy by reducing both output (reduced consumption) and productivity (reduced investment). 1. Money does not have to be fiat money to be inflationary. The government could achieve the same end in a fairer, more controlled manner without deceit simply by issuing a wealth tax, or a currency tax. However this would reveal the robbery too plainly and thus be unpopular. Inflation is an easier way that relies on deceit, sophistry, and obfuscation. 2. The people who benefit the most from inflation are people in government (who can fund themselves without taxing the populace) and banks/borrowers (who can create money to lend without the explicit cooperation of savers.) Neither group engenders sympathy. 3. Saving is a good thing and we need more of it. Many of society's problems can be directly traced to a lack of savings: pensions for the aged need to be provided because people do not save enough during their working years; health care must be provided because people do not save enough to be able to pay for it themselves; and investments must be funded by government because the savings are not available privately. Inflation discourages savings. 4. The wording "risk-free return for sitting on currency" is deceptive, implying that people who can have a risk free return won't work. This is not true and is best illustrated by computer technology which has been undergoing deflation since its inception decades ago. One can simply wait five years and likely be able to obtain today's hot, expensive technology for very little, likely for free. Yet despite this risk-free return for sitting on currency, people still choose to spend on technology they know is depreciating. 5. Contrary to the deception promulgated by those who profit from inflation and by the people who are deceived by them, a deflationary currency would encourage saving and sound investment while discouraging speculation and irresponsibility. For example, rather than allowing venture capitalists to fund risky new ventures with their own money, our inflation-funded government officials use public money to fund politically-connected companies like Solyndra. In a hard-money world, government would be a lot smaller, more focused on providing the services the public actually agrees to pay for, while the general populace would be more responsible and future-oriented, knowing that their savings now will determine their retirement. For more on this, see the writings of Murry Rothbard, e.g. http://mises.org/daily/1829 http://mises.org/daily/1829.
nilkn 13y ago
It also drastically increases the burden of debt.
go1111111 13y ago
>Deflation, by providing a risk free return for sitting on currency In the case of Bitcoin, the return would not be risk free. In the long run bitcoins would gain in value at roughly the rate of increase in gross world product. Bitcoins value would fluctuate at least as much as that of a global stock index fund. There would be added volatility due to changes in demand for money.

by JackFr 13y ago

icebraining 13y ago

I'm not disagreeing, but is there empirical evidence backing that? My only sources are heavily biased, but they point out that the periods of mild, predictable deflation (like Bitcoin would cause) such as The Great Deflation[1] actually experienced decent growth in real incomes and such. [1] http://en.wikipedia.org/wiki/The_Great_Deflation http://en.wikipedia.org/wiki/The_Great_Deflation

cma 13y ago
Plus the price of computation has been dropping in half 18 months for the last 60 years, but people still seem to be buying rather than waiting it out.
djur 13y ago
The deflation in the late 19th century wasn't caused by contraction in money supply, though. It was caused by a huge increase in productivity. It's hard to compare that with contractionary monetary policy.
- JackFr 13y ago
  The repeal of the Silver Purchase Act was pure deflationary monetary policy.

Tycho 13y ago

So a deflationary currency would lead to everyone simply grinding to a halt like those people on the planet in Serenity?

nly 13y ago

Bitcoin is only deflationary if the supply of everything else grows forever. If you look at prices throughout the ages you'll find things haven't always been like they are now[1]. We created the current global monetary system to deal with war debt, globalisation and mind-boggling growth in western prosperity, but there's no reason to believe what we use in 100-200 years will be based on the same principles at all. And no, I'm not saying Bitcoin or a return to the Gold Standard is the future, just that it's foolish to think a currency of limited supply "just doesn't work". At one point, it was completely natural and obvious to everyone that the supply of money was and should be limited. [1] https://philebersole.wordpress.com/2010/11/17/inflation-through-the-ages/ https://philebersole.wordpress.com/2010/11/17/inflation-thro...

SamReidHughes 13y ago
> Bitcoin is only deflationary if the supply of everything else grows forever. Right, Bitcoin wouldn't be deflationary if the economy simply stopped growing.
- baq 13y ago
  fact: people lose bitcoins, which leads to deflation directly when the "economy" (whatever that is) stops growing.

dalek_cannes 13y ago

> Deflation... leads to a slowdown in the real economy A fundamental, but slightly tangential question: is that a bad thing? What if modern societies are running too hot and need to cool down? 'Reduction', 'slowdown', 'productivity loss' -- these are negative in a purely economic context. But economics is a means to an end, not an end in itself. The end, I believe, (to borrow an American term) is the 'pursuit of happiness'. I don't think modern, developed societies are doing very well in that particular pursuit. It feels as if we're on a treadmill -- try to run faster and it turns faster, and you need to keep running faster just to stay on it. This may not apply to developing societies, who are still grappling with the lower layers of Marslow's hierarchy like food, health and education, but doesn't it seem like we have overshot? When we can afford to obsess over the number of cores or dots per inch on a handheld device, I think we can afford to slow down a bit. Perhaps a deflationary economy is just what we need. People shouldn't feel pressured to keep producing despite having ample savings just to keep up with the wealth erosion caused by inflation. /opinion Also: if the Bitcoin unit had been redefined so that the maximum number was 21 quadrillion, we might not have this debate. Nothing's changed fundamentally, but it is a number that for a laymen is a lot closer to infinity than 21 million.

diminoten 13y ago
I mean you might be right but we have no clue whatsoever. In our great lab that is the world, we know that deflation leads to Bad Things (TM). I'm no economist, but I don't know of a time in modern history where people were saying, "Thank Christ we're experiencing deflation!"
a_c_s 13y ago
A growing economy increases standards of living. The fact that a t-shirt costs $10 now that used to cost $20 10 years ago means that people now have more options. Some people will choose to buy 2x as many t-shirts, making them (roughly) 2x happier. Or some people will buy the same number of t-shirts and have extra money to do other things they want. And most importantly, some people who couldn't afford t-shirts now can. But nobody is forced to chase material goods, they buy what they choose to. The fact that this process is replicated across virtually all products in the economy is what lifts people out of poverty. We still have plenty of people struggling to make ends meet in the USA, something like half of all people live paycheck-to-paycheck. The only people who benefit from deflation are those with large amounts of capital and no debt, which is an incredibly small portion of the population that isn't struggling under the current system of low inflation.

plock 13y ago

>Deflation, by providing a risk free return for sitting on currency How is it 'risk free return'? What guarantee is there that the currency will continue deflating?

lukifer 13y ago

Isn't the buyer's incentive to hoard balanced exactly by the seller's incentive to acquire? If the currency acquires value at a stable rate (a big if), it seems to me that buyers and sellers would meet in the middle. After all, people buy things all the time (cars, computers) that rapidly depreciate compared to leaving cash in a savings account.

dpatru 13y ago

> Deflation, by providing a risk free return for sitting on currency, leads to a slowdown in the real economy by reducing both output (reduced consumption) and productivity (reduced investment). 1. Money does not have to be fiat money to be inflationary. The government could achieve the same end in a fairer, more controlled manner without deceit simply by issuing a wealth tax, or a currency tax. However this would reveal the robbery too plainly and thus be unpopular. Inflation is an easier way that relies on deceit, sophistry, and obfuscation. 2. The people who benefit the most from inflation are people in government (who can fund themselves without taxing the populace) and banks/borrowers (who can create money to lend without the explicit cooperation of savers.) Neither group engenders sympathy. 3. Saving is a good thing and we need more of it. Many of society's problems can be directly traced to a lack of savings: pensions for the aged need to be provided because people do not save enough during their working years; health care must be provided because people do not save enough to be able to pay for it themselves; and investments must be funded by government because the savings are not available privately. Inflation discourages savings. 4. The wording "risk-free return for sitting on currency" is deceptive, implying that people who can have a risk free return won't work. This is not true and is best illustrated by computer technology which has been undergoing deflation since its inception decades ago. One can simply wait five years and likely be able to obtain today's hot, expensive technology for very little, likely for free. Yet despite this risk-free return for sitting on currency, people still choose to spend on technology they know is depreciating. 5. Contrary to the deception promulgated by those who profit from inflation and by the people who are deceived by them, a deflationary currency would encourage saving and sound investment while discouraging speculation and irresponsibility. For example, rather than allowing venture capitalists to fund risky new ventures with their own money, our inflation-funded government officials use public money to fund politically-connected companies like Solyndra. In a hard-money world, government would be a lot smaller, more focused on providing the services the public actually agrees to pay for, while the general populace would be more responsible and future-oriented, knowing that their savings now will determine their retirement. For more on this, see the writings of Murry Rothbard, e.g. http://mises.org/daily/1829 http://mises.org/daily/1829.

nilkn 13y ago

It also drastically increases the burden of debt.

go1111111 13y ago

>Deflation, by providing a risk free return for sitting on currency In the case of Bitcoin, the return would not be risk free. In the long run bitcoins would gain in value at roughly the rate of increase in gross world product. Bitcoins value would fluctuate at least as much as that of a global stock index fund. There would be added volatility due to changes in demand for money.