

Deflation and Bitcoin, the last word. - dublinclontarf
http://forum.bitcoin.org/index.php?topic=11627.msg163670

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grovulent
I think the point here is that nobody knows. That may sound like a dismissive
and superficial stance to take... but it happens to be the most honest out
there.

There is a key aspect of knowing something in terms of a rigorous scientific
understanding that is forgotten so often in conversations about it that it
just drives me insane. In any experiment with a control, all your other
variables have to be fixed...

... or you don't know shit.

Now apply this to the bitcoin debate. Let's take it for granted that deflation
in a debt, fiat, gold based currency system is a bad... bad thing. We're going
to grant it for the sake of argument.

Well - you still don't know crapola about whether or not deflation in a
bitcoin based currency system is bad. For there are key differences in each
case. Once you move from any of these to bitcoin, certain variables flip.

In a debt based currency system, deflation amounts to the actual destruction
of available cash in the system. That's the chief reason why deflation is so
bad for our economies. If you get to the point where we're at now where the
system can't soak up any more debt, then your deflation becomes a real problem
since you no longer have any means to create the inflation you need to
stimulate growth.

But deflation in bitcoin does NOT entail cash destruction. For that is fixed
by the algo. So here is a key difference. And it's just one of many I could
mention for this case.

In a fiat based currency system - where a government prints the money (as
opposed to having a central bank buy government debt) - any deflation can be
offset easily because printing more money is not limited to debt saturation.
Bitcoin is just not comparable to this kind of system for this reason. We need
to compare it to systems where deflation is a real possibility.

Maybe it's closest to a gold backed system? Maybe. But there are flipped
variables here too. Gold is not infinitely divisible. It can't be exchanged
with any degree of ease like bitcoin can... etc...

Now of course, a little bit of a priori speculation is all well and good, and
a necessary part of hypothesis formulation. But for heaven's sake stop getting
into these discussions under the pretext of actually knowing anything.

The article is essentially right. We don't know. Run the experiment... wait
and see.

Oh but of course, we have governments that will shut it down before the
experiment has had a chance to yield results...

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tatsuke95
I love the claim that there has never been any controversial theories in
biology or physics, that turned out to be wrong, or at least the wrong path.
But I digress.

The author is only partially correct. The debate isn't whether
inflation/deflation is good or bad. They are both, depending on where you sit.
In some situations inflation is good (when you have a fixed interest rate and
a pile of debt to pay off) and some times it's bad (when you have a pile of
cash sitting in an account). It's the same for deflation.

I think the argument from Quora was that if you're trying to make Bitcoin a
universal currency, you'll have a tough time obtaining "reach" when everyone
knows there will be deflation. In other words, you know the currency you own
will be able to buy more goods in the future (as it becomes relatively more
scarce). So, you don't spend it.

Of course, it looks like the post explains that they just don't care. It's a
technological experiment. And that's also fine.

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nikreiman
So basically, the last word according to this post is, "some people think
deflation is the devil, but other people think it's good. Let's ignore them
both and just see what happens."

~~~
wccrawford
Nice. I particularly like how he claims it isn't a problem, and so everyone
else is just 'nattering on' about it.

The best way to allay fears is to issue a royal edict. I mean, surely it's not
a problem if the king commands it not to be?

~~~
edw
"Nefario" argues that governments love inflation. That is not the case.
There's no such thing as _the_ government. The U.S. Fed generally likes having
just a little bit of inflation. Anyone who remembers the 1992 U.S.
presidential campaign quite possibly remembers GHW Bush's irritation at
Greenspan for doing too much to fight inflation at the expense of job
creation.

Central banks are independent for this very reason: GHW Bush wanted to turn on
the printing presses and inflate the economy's way out of the recession, while
the Fed wanted to preserve the value of the dollar.

I don't think anyone's going to claim that the system is anywhere near
perfect, especially given the events of the last few years, but I have no idea
how _anyone_ can run through some simple thought experiments and not come to
the conclusion that a finite currency pool is lunacy.

~~~
bhousel
Exactly.. In fact, I'd go even further and say that everyone who is not an
economist or a nerd likes having just a little bit of inflation.

"Normal" people like going into their year-end review at work and getting that
2% cost of living increase. Or maybe they'll bitch that they didn't get it. Or
they might even picket and protest if their union hasn't gotten this bonus in
a few years. But they will absolutely not accept a situation where ever year
their salary has to float around because it's tied to a fixed money supply
that they don't understand.

Could you imagine this? "Hey great job this year, but the economy is really
taking off, so we need to cut your salary a bit to make up for that! Trust us,
you come out ahead because the cost of goods has gone down and you can buy
more with less."

Gentle inflation means gentle rising salaries, spending money, and happy
people. ANY deflation means decreasing salaries, hoarding money, and people
freaking out.

~~~
1010011010
citation needed.

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antiscam
This is a bit of a digression, but it's something important that needs to be
said. Most of the Bitcoin fanatics are drawn to Bitcoin in part because of a
bizarrely deep anger at the notion that units of their functional currency --
usually dollars -- are being inflated.

(Ignore for the moment that, though the dollar did decline in value from 2002
to 2008, it's actually not clear what it's currently doing; it may be
experiencing deflation itself.)

The irritating and incorrect thing about this anger is that nobody's forced to
hold the currency that they're upset at. Even for "fiat currency" that needs
to be used to pay taxes or offset debts, nothing requires that it be held
long-term and thus subject any individual to inflation. Choosing to experience
inflation in a government's currency is thus, in all modern governments, an
investment choice like any other investment choice. Many people hedge against
inflation, and it's very easy for any even moderately aware investor to do
this. The argument that Bitcoin's needed even partly because people have no
way to avoid the oppressive inflation of a corrupt regime is, basically,
economic, financial, and political nonsense.

~~~
tatsuke95
Very good points. There are near-infinite ways to store your wealth, from
cash, to real estate to art to Pez dispensers. Bitcoin might be another.

Inflation in and of itself is not harmful. Unexpected inflation and lack of
accounting for it can be.

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trotsky
Related to the recent discussions of bitcoin over-saturation and where the
voting comes from, this post was linked to in an article over on the bitcoin
forums entitled "Get this deflation post onto the front page of HackerNews and
reddit" made by one of the global moderators there.

<https://forum.bitcoin.org/index.php?topic=11631.0>

