Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Bitcoin Deflation and Economic Activity

computationallyendowed.com

Post reply on HN
Print view View original

71–80 of 95 posts

Re: Bitcoin Deflation and Economic Activity

#71

Post by aidenn0 »

jwallaceparker wrote: post #22

> why buy something today if it will be cheaper tomorrow? Because you want it today. The "fear of deflation" argument is now pervasive among monetary theorists. The argument goes that if people know that prices will fall, they will indefinitely delay all economic activity. This ignores the time preference aspect of economic decision making. For example, I will buy my cup of coffee today rather than wait a day or week…

I am not an economist, but I thought that both Austrians and Keynsians agree that fiat currency with steady, moderate inflation will increase economic activity versus a steady deflationary currency.

The disagreement is whether or not artificially generating economic activity by inducing inflation is a good thing or a bad thing.

The Austrians think that the increased economic activity consists largely of malinvestments due to artificially cheap credit, which will cause a short-term boom, followed by a subsequent crash.

The Keynsian view is that you can ease out of the boom without a crash, and that the markets will take too long to equilibrate without such an artificial increase in monetary supply ("In the long term, we're all dead").

Re: Bitcoin Deflation and Economic Activity

#73

Post by stevedekorte »

the deflation argument:

1) if value of A increases relative to B, people with A that want B will wait to trade for B

Make A money and B some good and you have the deflationary spiral argument. But notice that the structure of the argument is unchanged if we make B a good and A money. The sellers and buyers are symmetric - when you buy a good with money, you are selling the money for the good. If the deflationary spiral is correct, it is correct both ways, and if it is correct both ways, it isn't correct at all. Any temporary asymmetry in price movements run into time preference barriers that return it to a relative equilibrium.

Re: Bitcoin Deflation and Economic Activity

#74

Post by stevedekorte »

the deflation argument:

1) if value of A increases relative to B, people with A that want B will wait to trade for B

Make A money and B some good and you have the deflationary spiral argument. But notice that the structure of the argument is unchanged if we make B a good and A money. The sellers and buyers are symmetric - when you buy a good with money, you are selling the money for the good. If the deflationary spiral is correct, it is correct both ways, and if it is correct both ways, it isn't correct at all. Any temporary asymmetry in price movements run into time preference barriers that return it to a relative equilibrium.

Re: Bitcoin Deflation and Economic Activity

#75

Post by stevedekorte »

the deflation argument:

1) if value of A increases relative to B, people with A that want B will wait to trade for B

Make A money and B some good and you have the deflationary spiral argument. But notice that the structure of the argument is unchanged if we make B a good and A money. The sellers and buyers are symmetric - when you buy a good with money, you are selling the money for the good. If the deflationary spiral is correct, it is correct both ways, and if it is correct both ways, it isn't correct at all. Any temporary asymmetry in price movements run into time preference barriers that return it to a relative equilibrium.

Re: Bitcoin Deflation and Economic Activity

#76

Post by stevedekorte »

The deflation argument:

1) If value of X increases relative to Y, people with X that want Y will wait to trade for X.

If we make X money and Y some good and you have the deflationary spiral argument.

But notice that the structure of the argument is unchanged if we make X a good and Y money.

What does this suggest about the argument?

Re: Bitcoin Deflation and Economic Activity

#77

Post by jswinghammer »

jude- wrote: post #43
jswinghammer wrote: post #24

Earlier quoted context omitted.

The government could keep currency stable by simply not permitting more to be created. Done. That's not the intention. The intention is to make sure the banks can loan out as much as they want when they want and then get bailed out when crashes occur.

Not true. If the amount of money in circulation was fixed, the fluctuating demand for it would cause its value (i.e. what goods/services it will purchase) will fluctuate with it.

It does that anyway. The currency itself would be stable and there would be no guessing games about what was going on with monetary policy since there would be no policy to discuss.

Re: Bitcoin Deflation and Economic Activity

#78

Post by dllthomas »

stevedekorte wrote: post #73

the deflation argument: 1) if value of A increases relative to B, people with A that want B will wait to trade for B Make A money and B some good and you have the deflationary spiral argument. But notice that the structure of the argument is unchanged if we make B a good and A money. The sellers and buyers are symmetric - when you buy a good with money, you are selling the money for the good. If the deflationary spir…

If people are waiting to trade A, then there will be a shortage of A, which means (in a marketplace) that people trying to trade B for A will need to trade more B. The pressures are not symmetric just because the action is when we restrict our viewpoint to two participants.

Re: Bitcoin Deflation and Economic Activity

#79

Post by seliopou »

marcell wrote: post #65
seliopou wrote: post #29

Earlier quoted context omitted.

Author here. First, regarding point 2, I use a period of time in which 90% deflation occurred (from the perspective of bitcoin-holders) and consider what affect that would have on profits in a bitcoin-only economy. I do not assume 90% annual deflation forever, though I do suggest that deflation will continue. If anything I wrote seems to suggest deflation will continue at a rate 90% forever, please point out where an…

The article uses 90% as the sample figure. There is no direct statement that this is the type of deflation that will occur, but it seems unlikely that bitcoin prices will increase 10x every year, which is what it would take to have that level of deflation in the long run. Using a lower number, like 5%, would have been more reasonable, IMO.

I the the second paragraph, I link to a chart showing the percentage increase of the price of bitcoin in USD between July 25 and November 25, 2013. That increase would correspond to roughly a 90% decrease in bitcoin price levels. People holding bitcoin would perceive this as 90% deflation, while people not holding bitcoin would perceive this as a relative appreciation of bitcoin to the dollar.

It is a completely reasonable number because it actually happened, and I point all of this out in the blog post.

Re: Bitcoin Deflation and Economic Activity

#80

Post by tokenizer »

jwallaceparker wrote: post #42
tokenizer wrote: post #30

Earlier quoted context omitted.

What's your opinion on inflation as an economic driver? I'm also a fan of deflation (as I want to save my money) but the Federal Reserve and other central banks (Japan being a notable example) are advocating for higher inflation, which begs another question: Are they right and both deflation and inflation can supply economic growth? If so, does that mean another factor is the main proponent for growth?

> What's your opinion on inflation as an economic driver? My opinion is that inflation does not drive economic growth. > Are they right and both deflation and inflation can supply economic growth? Neither one supplies economic growth. > does that mean another factor is the main proponent for growth? Increased productive capacity is the source of economic growth. Not the supply of currency. Take a simple example. Thre…

Thank you very much for your response.

Furthering your point on neither deflation nor inflation driving economic growth but rather productivity increases, does that mean what the FED is doing through monetary policy zero sum?

I subscribe to a camp that believes that what the FED is doing through quantitative easing and zero percent interest rates, is actually harming the economy by sacrificing quality of life of persons without wealth (investments, property, assets) for gains for those that do (real estate bubble, stock market gains since 2008). Can this be true? Or am I looking at the situation too simplistically?

Regarding the topic at hand, do you believe that bitcoin's low cost of transmission and features such as escrow and consignment lend the commodity-currency true value (like gold's value being that you can wear it, use it for electrical equipment)? Or do you look at the protocol as having no intrinsic value (pure fiat)? -And do you think that that matters as a currency?

Many skeptics claim that a crypto currency backed by a mineral would be ideal, and that bitcoin's only value is in it's perceived worth. They also believe that this means it could be a big tulip party waiting to crash.

I'm not sure what to believe regarding bitcoin's future, as gold has had 4000+ years to earn it's place in the world. Thank you for your time.

Post reply on HN