None of the rights enjoyed by citizens of liberal democracies matter without the right to transact. You can’t exercise your right to speech if you can’t buy posters or domain names for your cause. You can’t go to a protest outside of walking distance if you can’t pay for gas in your car, or a bus or train ticket. Governments gaining such control of currency would be a backslide into authoritarianism.
Your comment is based on unfounded assumptions --- that the current banking system will be subverted and cash will no longer be accepted and due process under the law will become null and void.
None of these are being proposed. Implementing all of these would require changing the constitution.
In other words, your comment is an example of the paranoia I referred to.
> Implementing all of these would require changing the constitution.
A statement like this requires being explicit about the country or set of countries in question, narrowing down the set of constitutions that would require amendments.
If the legal system of a country does not explicitly require merchants to accept cash (some places do, some don't - just like in some places a merchant may refuse a customer and in some they can't), it is technically possible to create a practically cashless environment without having to explicitly lock anything down explicitly, but merely by creating an incentive to not accept cash. There's barely any practical difference between no one (save a few die-hards acting on a principle) accepting cash because it's inconvenient to deal with (or simply unfashionable, hah) and actually blocking cash acceptance - the model is indeed different but outcome is ultimately the same.
For an imaginary extremely powerful and nefarious adversary the former model is even preferential, as it provides a plausible deniability. Whenever there's such and adversary with a will and power to do so is a separate question which I'll intentionally avoid.
Cashless society is indeed being proposed in the US. During the time when I was in college (at a public university), all university-run businesses switched to cashless. As in, you literally could not pay with cash. They wouldn’t accept it.
> Implementing all of these would require changing the constitution
This is naïve. Many countries, the US included, have variations of an emergency powers act, where the executive can get around the constitution in some ways. Even without that, though, you still can have things like Operation Choke Point [1], where the government merely makes suggestions/threats to private banks and payment processors to close the accounts associated with things they don’t like. So no, this has precedent. It’s not paranoia.
Well, if we'd step out of "citizens of liberal democracies" scope defined by a parent comment... Then, there's also another story of "freezing of bank accounts of political dissidents" - Mr. Navalny and FBK. Obviously, the government position is that they're criminals who impeded and infringed on the rights of other citizens.
It's not that I agree or disagree with your example - honestly, I've no idea, I haven't really tracked that story I presume you're talking about. What I suspect, though, is that ultimately, it's all a matter of trust. Which is a highly subjective matter.
What I wanted to say is that it might not exactly be a good idea, tone-wise, to call it a "paranoia", when it's just a matter of disagreement about subjective things.
So you admit there is now recent precedent for people allegedly committing crimes having their bank accounts frozen, without even a public hearing or trial?
Dr. King and Gandhi were also committing crimes by "impeding and infringing on the rights of other citizens"
I'm pretty sure Snowden or the schihub founder would be candidates to freezing. Cryptos are really useful for specific edge cases where the law become too retrograde. That is not a huge market, but that is a meaningful one.
> You can’t exercise your right to speech if you can’t buy posters or domain names for your cause. You can’t go to a protest outside of walking distance if you can’t pay for gas in your car, or a bus or train ticket.
I think this aught to make us consider the antidemocratic effects of poverty and inequality too.
Deflation is the worst possible state for a currency.
An economy is defined as the flow of goods and services. Currency is the medium through which goods and services flow. Deflation encourages people to not spend their money. Not spending money means goods and services don't flow, means an economy collapses.
That bitcoin / crypto people keep harping that deflation is a good thing proves to me that these people know nothing about economics and should never be trusted as such.
> That bitcoin / crypto people keep harping that deflation is a good thing proves to me that these people know nothing about economics and should never be trusted as such.
They're desperately seeking a store of value (which isn’t wealth; it’s only wealth if productive or others need it and will trade something for it) that can't be devalued by humans, with expected results (value is constantly changing and subjective). As you mention, it shows a lack of economic understanding.
The argument that with deflationary currency nobody will spend is ridiculous. Everybody still needs to spend to buy whatever they need for daily life. Money will still be spent into the economy. The difference between moderate inflation and moderate deflation is what people do with their excess money. With inflation people will buy stuff just because stuff holds its value and money doesn't. With deflation people save their excess. The higher the inflation/deflation level the more pronounced the behavior of spending/saving.
People having savings is a sign of a healthy economy. With savings there are more people that have an opportunity to invest. Investment provides real growth.
Deflationary being bad has nothing to do with essential spending and everything to do with discretionary spending. I (and many people I know) don't buy games that we want to play right away because we know they will be on sale in a month or so, and can wait. If I expect houses to go down in price I will not put a lot of effort into buying a house, and instead rent for now. Used car prices right now are extraordinarily high, so I will not be upgrading my car until prices start coming down. I'm not buying a new graphics card because I think prices are inflated and I believe they will come down sometime in the next yea. Etc...
A significant portion of our economy is reliant on discretionary spending, and when discretionary spending drops we usually end up in recessions, as companies that rely on that spending start layoffs.
> Deflation encourages people to not spend their money
Oh the horrors! Maybe people will not spend their money on stupid shit, they might conserve instead of destroy the environment. Maybe the middle class wont be forced into participating in the casino-for-privileged-mbas that is the stock market. Maybe we will stop having a siphon that steals the labor value from the lower class and drops it on the doorstep of the rich.
In a deflationary economy, it's not just consumers who stop spending, it's everyone: companies stop investing, employers stop hiring. This leads to a vicious cycle. History shows us that deflationary economies can be more damaging that inflationary.
This is repeated all the time, but nobody seems to provide evidence besides some offhanded comment about Japan. You realize this is an opinion or ideology not something like physics laws right?
> nobody seems to provide evidence besides some offhanded comment about Japan...this is an opinion or ideology"
That's because "since WWII, one country has come close to having both a depression and a deflation: Japan in the late 1990s" [1]. The source of policymakers' hesitance with deflation "seems to stem from the experience of the Great Depression, in which deflation and depression appear to have been tightly linked."
We have limited data suggesting moderate deflation is any more damaging than moderate inflation. We have better-tested tools for fighting inflation. But with negative interest rates and QE (implying the existence of its inverse, i.e. the central bank selling short), deflation is less scary.
The problem with Bitcoin is its fixed supply. Bitcoin would not produce steady deflation. It is inherently volatile, as the bullwhip effect of the credit system is left unmoderated. The failures of fixed-supply currencies are documented beyond the domain of "opinion or ideology," e.g. in studies around currency substitution [2].
> We have limited data suggesting moderate deflation is any more damaging than moderate inflation
You don't need data to understand how people would simply stop working and wait for their cash to appreciate as they do nothing.
Except you can't consume or eat cash and also life is short and tomorrow is not guaranteed so when you decide that it's time want to spend it you'd not be better off in any way even after deflationary appreciation because everybody had the same brilliant idea and the huge mass of people stopping working caused a collapse in raw output of products and services.
Part of me wishes this actually happens, because those who operate countercyclically and keep working when everybody stops to sit on their couch hoping for deflation to make them rich, would eventually make a fortune when sanity comes back and people realize they can't eat the zeros and ones in their bank account.
An individual frame of reference is so deeply embedded in opinionated commentary about monetary topics. I find that lazy people argue that everyone is lazy; intelligent people speak as if everyone is intelligent; and selfish people accuse others of being selfish. No one is completely, absolutely any of those things, nor their opposite, yet those are part of the human condition.
> don't need data to understand how people would simply stop working and wait for their cash to appreciate as they do nothing
You do need data to confirm how these people affect the economy in aggregate. Based on our current evidence, when there is a steep supply curve, deflation is fine [1]. (People hoarding money and delaying consumption and production doesn't change output because (a) there is excess demand and (b) production is constrained by non-price factors.)
Where is this excess supply at? Have you seen gas prices? Are you aware that the US had to use oil reserves from the strategic reservoir for the first time in decades?
Europe is looking at legal measures to shrink its energy consumption such as regulating thermostats in public offices, schools and universities!
OPEC is also using this as an opportunity to shore up its state balance sheets after COVID, they will come through but not before they waste even more time to make sure they milk the West up to the very last politically acceptable petrodollar
This isn’t what a steep supply curve means. And I wasn’t claiming we are currently in a steep supply curve environment (though we are seeing evidence of it).
I don't understand your point. You seem to be saying that deflation is bad because if it happens, people will find that they can't buy goods at the price they expect. But that's the definition of inflation. So deflation is bad because it's actually inflation?
Or maybe you're saying that any period of deflation will inevitably be followed by a period of inflation, as production collapses due to the deflation? And you also think that people (other than you) won't realize that, and so behave as if the deflation is permanent, causing the problem?
It seems to me that as long as the deflation is less than the natural real interest rate (so nominal interest rates are still positive) there is no problem of this sort. It's no more a worry than thinking that anyone with a bit of money in the bank will decide to just live off the interest rather than work. There are such people, but most working-age people either don't have enough money for that, or want to work anyway.
The usual argument against deflation involves supposedly "sticky" wages that don't adjust downwards fast enough. Maybe that's the case, but it depends on particular social factors (eg, embarrassment at getting a pay cut).
>>>Deflation encourages people to not spend their money. Not spending money means goods and services don't flow, means an economy collapses.
How do we square that with the unending flow of junk that is produced with obsolescence baked in and disposed of? How do we square "economic growth uber alles!" with the constant warnings of man-made climate change and our impending doom due to wasting our resources on cheap shit from China?
I would argue that the short-term time preference should balance the effects of inflation. I don't really care that a Lamborghini might cost half as much in 10 years. If I want to drive one TODAY bad enough, I will still buy it. If my umbrella has a hole in it and it's raining, if I want to be dry RIGHT NOW, I don't care that an umbrella is cheaper tomorrow.
I would also argue that technological improvement is inherently deflationary, and that technological improvement is all about resource efficiency: accomplishing the same work with a smaller expenditure of resources. Even if rising demand were to lead to higher equilibrium prices, we should be balancing the economy in such ways that prices still fall or at worst remain static, to reflect the diminishing resource requirements for a given unit/widget produced.
Many economies have collapsed or people have been severely harmed from runaway inflation. Even now in the US, the wealthy aren’t terribly affected by inflation, especially with home and stock prices rising more than enough to offset them, while the poor are increasingly struggling with currently no end in sight.
Perhaps a Bitcoin w/ 2% inflation would have been better than a deflationary one, but I still question whether the average person in the average country is better off with the risk that their government mismanages target inflation than with an algorithmic deflationary Bitcoin.
I also question whether Bitcoin being deflationary is really a bad thing when it’s also a store of wealth and not the only means of exchange in a country.
> Many economies have collapsed or people have been severely harmed from runaway inflation
And the USA's economy was ruined in the 1930s by runaway deflation.
The poor don't like inflation _OR_ deflation. Both suck. The rich has the ability to move money around to maximize their gains in any situation, so the rich aren't really harmed by either.
> Many economies have collapsed or people have been severely harmed from runaway inflation.
False dichotomy. The last 50 years of monetary policy in developed countries show that you can have moderate inflation (yes, sometimes a bit too much, like now, but moderate overall) without hyperinflation.
Do you think 50 years is all that long in the historical context?
America showed that you could have hundreds of years of stable democracy until a simple combination of cable news, Twitter and a narcissistic president almost led to a coup.
The Roman republic was stable for hundreds of years until it collapsed.
The Turkish lira has lost more than 97 per cent of its value against the US dollar since January 2021.
I agree with you that the 1950-2010 world order and U.S. monetary system was better than Bitcoin. Where we disagree I think, is with our confidence in the stability of human institutions and the likelihood that the world necessarily remains stable in that world order for the next 1,000.
The question is not whether it's possible for a central bank to maintain a policy that leads to only moderate inflation, but whether your central bank will maintain such a policy. You seem to think that being a "developed" country will guarantee that. Like the highly developed country of Germany in the 1920s perhaps?
>but I still question whether the average person in the average country is better off with the risk that their government mismanages target inflation
In recent history (say the past 50 years), how many countries have experienced serious inflation problems that were caused by orthodox, well-founded attempts to manage target inflation?
As far as I know, the answer is none. If you have a country where the leadership (usually dictatorial, autocratic, one-party or some variation thereon) has adopted policies that are already leading to economic disaster, then hyperinflation is something you tend to get along with - it's a symptom, not a cause.
Most people who bought Bitcoin within the last year are underwater with their investment. Some have lost 45%. They'd have done better to keep cash and take the 8% inflation hit.
Since you're clearly using "spending" in a more economic sense, but most people will read it from the perspective of household finances and therefore interpret spending as morally wrong, I'll add that the spending you're discussing includes, and primarily is, investment.
Both your run of the mill, deposit money in the bank which loans it out so all sorts of businesses can be built, and people can buy houses, cars, etc., and your more exotic VC and hedge fund investments.
I think there are people who understand economics who think that inflation is often a good thing. Here for example is a quote from Investopedia’s article on Inflation:
“Most of the time, deflation is unambiguously a positive trend for the economy, but it can also under certain conditions occur along with a contraction in the economy.”
Now deflation caused by a deflationary currency is probably not unambiguously good in the same way as deflation caused by increased production.
But are there not any respectable economists who would argue that a deflationary currency might not be so bad?
The gold standard isn't a fixed-supply currency. Gold was mined throughout the nineteenth century, coïncidentally, at about the rate of economic growth. When growth kept going while mining stalled, a series of economic crises pushed developing nations away from the standard.
> Bitcoin is deflationary, a CBDC would not be. This is the biggest pro-Bitcoin argument
Except Bitcoin is not deflationary. It's fixed supply. Those are separate, if related, characteristics. In the last year it's been roughly flat, with the word "roughly" doing a lot of work, given its volatility that would make a Zimbabwean central banker blush.
> Fixed supply is deflationary in a world where population increases
This assumes the whole world uses the currency, which is untrue for every currency in the history of humanity, and that per capita output per person using the currency is at least flat, which is also questionable.
Demographics are an input into monetary policy. But the effect is way fuzzier than you imply [1].
Fixed supply -> almost certainly inflationary. It is only not inflationary if nobody ever makes a coin burn and nobody ever leaves less money in a that is worth less than a transaction to move it will cost.
This is a claim made repeatedly by Bitcoin proponents and opponents, based on various ideological differences.
But the statement is nonsensical. The statement "Bitcoin is deflationary" is exactly equivalent to the statement "Bitcoin will always increase in value".
> Bitcoin is deflationary, a CBDC would not be. This is the biggest pro-Bitcoin argument.
That's not actually a pro-Bitcoin argument. It's just an artifact the peculiar ideologies that influenced Bitcoin's creator. Deflation hurts economic activity, but benefits hoarders.
Bitcoin may not be inflationary but it is certainly depressionary.
As in those who paid nearly $70k per Bitcoin after El Salvador declared it an official currency 7 months ago are probably feeling kinda depressed right now.
Calling what they were doing simply "disagreeing" is a little insulting to common sense.
You have every right to disagree and protest --- but you don't have a right to illegally blockade bridges and prevent others from traveling to work or to the hospital if need be.
Who knew? But thank you El Salvador for making it even more painfully obvious.
A digital dollar (CBDC) could easily undermine every argument for Bitcoin except one --- paranoia/distrust of government.