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First, I agree that libertarians are intellectually embarassing, and I am sad to see them arguing poorly for so many things I agree with. Second, addressing de

by javert 13y ago

First, I agree that libertarians are intellectually embarassing, and I am sad to see them arguing poorly for so many things I agree with. Second, addressing deflation. From the point of view of production: deflation would get priced into the value of the currency so that it wouldn't at all be clear that holding onto deflationary currency will net you more than actually investing it in productive activity. From the point of view of consumption: Arguing that people will hold onto currency to eek out a little more value is like arguing that people in an inflationary economy will withohold selling goods and services to eek out a little more value. It just doesn't happen that way. In an inflationary society, consumption can't and won't be deferred indefinitely (the rich would rather have their new boat now and the poor don't have an option to wait and buy food later). Same goes for production in an inflationary society.

mwsherman 13y ago
Yes, these are good insights. If consumers hoard currency in a deflationary economy, we should expect producers to hoard in an inflationary one. (I’d also argue that there is nothing special about “zero”, that slight inflation or deflation are not different in kind.) Further, the tech industry fits every definition of deflationary – your dollars will buy more next year, and consumers hold expectations of same. But it has grown in wages, revenues, consumer benefit, persistently.
- etchalon 13y ago
  1. The only "producer" of fiat currency is the government that issues it. There is no incentive for a government to hoard money it creates to pay its own bills. 2. Even if we imagine a currency which must be produced, it's a matter of degrees. A little inflation is good, a little deflation isn't terrible. 3. Arguing that, because your dollar buys a better computer next year, it is the same as your dollar buying more food tomorrow than what it can today is beyond ridiculous. They are not the same thing in any rational way.
  - msandford 13y ago
    If consumers (of goods) hoard currency in a deflationary environment then producers (of goods) should hoard commodities in an inflationary environment. In both cases they're acting rationally to maximize value.
    - Jtsummers 13y ago
      Inflation: A producer should hoard goods because it will (likely) be worth more tomorrow than it is today. In the mean time they have to spend money to maintain storage of the good. They have to maintain the condition of the goods so it's still useful when they sell it. They have to pay people to maintain these things. Which means eventually they have to sell something in order to pay these costs associated with their hoarding. Very few goods (outside of raw materials like metals) can sit around for years at a time and gain value. If it's food, it'll rot. If it's a technology good, it'll be obsoleted. Even oil and many other non-dietary consumables will succumb to decay of some sort over time. Deflation: A consumer should hoard cash because it will (likely) be worth more tomorrow than it is today. Outside of home security they don't need much to store it. They'll eventually spend some of it, because they need to eat and feed and clothe their family. But overall, the hoarding here is relatively cheap. These may both be rational positions, but they are not equivalent positions or mirrors of each other. There is a symmetry, but similarity is not the same as equality.
- bmm6o 13y ago
  Planets would have to align to make hoarding profitable for producers. Consider: - The firm would need to choose potential future income over current income i.e. not need the cash flow and have no good way of investing that money (internally or externally) - Current sales would have to cannibalize future sales, or else they would sell now and in the future - The value of the future sale would have to be discounted by the chance that the customer buys from a competitor. So either you're talking about a monopoly or staggering inflation I don't see this ever happening under what anyone would consider acceptable levels of inflation. What annual rate do you think you'd have to see before this makes any sense?
Daniel_Newby 13y ago
> From the point of view of production: deflation would get priced into the value of the currency ... The discount rate cannot be negative. That is, lenders will never pay people to borrow money from them. The natural interest rate since ancient times is about 10%/year. So if there is 1% annual deflation, lenders can charge 9%. If the deflation is 8%, lenders can charge 2%. But if deflation is 13%, lenders cannot charge -3% interest. You cannot possibly pay people to borrow money from you. At that point all the mortgaging, public works bonding, factoring, revolving credit, etc. comes crashing to a halt. And firey politicians start saying that mankind shall not be crucified on a cross of gold.
- saalweachter 13y ago
  Apologies for the friendly fire, but we did manage to achieve negative real interest rates in recent history. People bought debt from governments at a negative discount at several points during the Great Recession because it was perceived as less risky than a bank (they were afraid the bank would go under, and take with it their money), and less costly than a cash vault. So that once self-evident fact now has a couple of exceptions. Of course, this doesn't help consumers, since they aren't safer than banks, and it doesn't apply to Bitcoins, since the cost to store them securely is zero.
- javert 13y ago
  I learned from this, and boy, was it elegant. Anyway, in a hypothetical bitcoin economy, I can't _imagine_ annual deflation in the range you are talking about (e.g. close to 10% or greater), because that should be "priced in" ahead of time. I mean, there should/could be some deflation (or even inflation) on a year-by-year basis, but it shouldn't be that high. Right?
  - Daniel_Newby 13y ago
    Hint: when a thing is deflating, it costs more to buy.

by javert 13y ago

mwsherman 13y ago

Yes, these are good insights. If consumers hoard currency in a deflationary economy, we should expect producers to hoard in an inflationary one. (I’d also argue that there is nothing special about “zero”, that slight inflation or deflation are not different in kind.) Further, the tech industry fits every definition of deflationary – your dollars will buy more next year, and consumers hold expectations of same. But it has grown in wages, revenues, consumer benefit, persistently.

etchalon 13y ago
1. The only "producer" of fiat currency is the government that issues it. There is no incentive for a government to hoard money it creates to pay its own bills. 2. Even if we imagine a currency which must be produced, it's a matter of degrees. A little inflation is good, a little deflation isn't terrible. 3. Arguing that, because your dollar buys a better computer next year, it is the same as your dollar buying more food tomorrow than what it can today is beyond ridiculous. They are not the same thing in any rational way.
- msandford 13y ago
  If consumers (of goods) hoard currency in a deflationary environment then producers (of goods) should hoard commodities in an inflationary environment. In both cases they're acting rationally to maximize value.
  - Jtsummers 13y ago
    Inflation: A producer should hoard goods because it will (likely) be worth more tomorrow than it is today. In the mean time they have to spend money to maintain storage of the good. They have to maintain the condition of the goods so it's still useful when they sell it. They have to pay people to maintain these things. Which means eventually they have to sell something in order to pay these costs associated with their hoarding. Very few goods (outside of raw materials like metals) can sit around for years at a time and gain value. If it's food, it'll rot. If it's a technology good, it'll be obsoleted. Even oil and many other non-dietary consumables will succumb to decay of some sort over time. Deflation: A consumer should hoard cash because it will (likely) be worth more tomorrow than it is today. Outside of home security they don't need much to store it. They'll eventually spend some of it, because they need to eat and feed and clothe their family. But overall, the hoarding here is relatively cheap. These may both be rational positions, but they are not equivalent positions or mirrors of each other. There is a symmetry, but similarity is not the same as equality.
bmm6o 13y ago
Planets would have to align to make hoarding profitable for producers. Consider: - The firm would need to choose potential future income over current income i.e. not need the cash flow and have no good way of investing that money (internally or externally) - Current sales would have to cannibalize future sales, or else they would sell now and in the future - The value of the future sale would have to be discounted by the chance that the customer buys from a competitor. So either you're talking about a monopoly or staggering inflation I don't see this ever happening under what anyone would consider acceptable levels of inflation. What annual rate do you think you'd have to see before this makes any sense?

Daniel_Newby 13y ago

> From the point of view of production: deflation would get priced into the value of the currency ... The discount rate cannot be negative. That is, lenders will never pay people to borrow money from them. The natural interest rate since ancient times is about 10%/year. So if there is 1% annual deflation, lenders can charge 9%. If the deflation is 8%, lenders can charge 2%. But if deflation is 13%, lenders cannot charge -3% interest. You cannot possibly pay people to borrow money from you. At that point all the mortgaging, public works bonding, factoring, revolving credit, etc. comes crashing to a halt. And firey politicians start saying that mankind shall not be crucified on a cross of gold.

saalweachter 13y ago
Apologies for the friendly fire, but we did manage to achieve negative real interest rates in recent history. People bought debt from governments at a negative discount at several points during the Great Recession because it was perceived as less risky than a bank (they were afraid the bank would go under, and take with it their money), and less costly than a cash vault. So that once self-evident fact now has a couple of exceptions. Of course, this doesn't help consumers, since they aren't safer than banks, and it doesn't apply to Bitcoins, since the cost to store them securely is zero.
javert 13y ago
I learned from this, and boy, was it elegant. Anyway, in a hypothetical bitcoin economy, I can't _imagine_ annual deflation in the range you are talking about (e.g. close to 10% or greater), because that should be "priced in" ahead of time. I mean, there should/could be some deflation (or even inflation) on a year-by-year basis, but it shouldn't be that high. Right?
- Daniel_Newby 13y ago
  Hint: when a thing is deflating, it costs more to buy.