Comment by benenrjdnz
3 hours ago
Deflation is a good thing, it rewards delayed gratification. Those evil Keynesians have convinced the world a little bit of inflation is good. It isn’t. Losing purchasing power on your money is a bug.
Nothing wrong with putting money under a mattress for 100y if the value of money is not evaporating.
For most of human history the money was stable. It’s the disasters of 20th century wars that eroded the value, and 21st century lack of monetary discipline that keeps driving it down now.
It's nice when I do it. Not so nice when everyone else does it. If sitting on the money has better returns than running a supermarket, why run a supermarket? Any investment has to beat deflation. Why hire people? In fact maybe I should fire everyone to hold on to more capital and spend as little as possible...
> If sitting on the money has better returns than running a supermarket, why run a supermarket?
First of all, because not everyone starts with inherited wealth. Also because ideally running a supermarket should give you more money even in a deflationary world. Worst thing is that you gain less money on day N+100 vs day N, but it does not mean you lose money or stop gaining it.
> First of all, because not everyone starts with inherited wealth.
So how are you going to build the supermarket?
> Also because ideally running a supermarket should give you more money even in a deflationary world.
If it needs to give you more money than just saving the investment (which it should, you need to be rewarded for the risk or you would just save the money), obviously the profit margin has to be higher than it currently is, which would increase prices.
But a deflationary system rewards inherited wealth. It's a pyramid scheme where the person at the top splits their big piles up into smaller piles, selling them to newer people, who then sell their smaller piles to newer people...
So you'd be working for 0.000000000000000001 coins per day at the amazon warehouse, while Bezos has 500000 coins because he was born with them. There would never be a way for you to get 500000 coins, because there are only 20m coins in existence.
> First of all, because not everyone starts with inherited wealth.
So then you need an investment; you're going to have to return a multiple of the deflation rate since the risk of your supermarket shutting down is probably higher than the currency changing course.
But if sitting on a pile of cash provides returns, eventually all money will accumulate into the hands of a few ultra wealthy individuals. (Hmm...)
> Also because ideally running a supermarket should give you more money even in a deflationary world.
Running a super market involves owning physical goods for some period of time. With deflation, the price you can sell those goods for drops while you are holding them. In fact most economic activity involves paying for inputs (labor, materials, etc) and then later getting paid for your outputs. Deflation directly impacts profitability and can cause losses.
Since deflation causes demand to drop as economic actors wisely choose to start hoarding currency and buying less, this causes a feedback loop where deflation can spiral.
Similarly, inflation causes demand to increase since holding currency is unwise and it is better to spend or invest that currency than hold onto it.
These two patterns mean that the neutral state (no inflation or deflation) is unstable as any deviation above or below starts a feedback loop until things fall apart. This is the boom and bust economic cycle that modern monetary management is supposed to ameliorate.
Given that you want economic growth, the best solution is to try to stabilize around a small fixed amount of inflation. Arguing for the end of inflation is arguing for the end of economic growth.
Surely most of the people putting their money under the mattress would still need to use a little of that money to buy food.
Yep, exactly why Bitcoin people dont understand their own system.
The point of money is not to reward delayed gratification. The point of money is to efficiently tabulate human preferences, and deflation directly counteracts this by introducing potentially unbounded latency at every step. That's why it destroys economies, as it has throughout history.
Can you provide an example of deflation destroying an economy in history? There are many more examples of inflation destroying economies.
The problems with using physical gold as currency are very well known. When population would increase, or when someone would hoard it, it would cause deflation. Likewise, when a new deposit of gold was found, it would cause inflation.
This is, in part, why there were expeditions to find gold.
Wasn't the great crisis in first half of 20th century caused by deflation?
Japan in living memory, I believe? I'm not a history buff. Google should have many examples.
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Are you kidding me? Have you heard of a tiny event called the Great Depression?
The Japanese Lost Decade?
Greece Debt Crisis?
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I think deflation-based economy could produce some interesting capital-allocation environemnt. Investment offering a 2% real return becomes unattractive if cash itself earns 2% real purchasing-power yearly. You could argue this raises the hurdle rate for investment and eliminates low-quality projects. And the counterargument is exactly the same: it raises the hurdle rate for investment and therefore some potentially good projects would never receive funding. And thats probably where the intellectually interesting argument really lives, rather than in inflation good deflation bad
> Losing purchasing power on your money is a bug.
The idea that you can put away an amount of money under your bed that buys 1,000 loaves of bread or one GPU, leave it there for decades, and then have it buy exactly the same number of loaves of bread or GPUs is a fantasy. You can hold onto the shiny rock but you cannot stop the world rotating around you and changing all its relative prices.
> For most of human history the money was stable
Achieved by a combination of restrictions on trade, price stability laws, occasional crippling shortages, and quietly shaving bits off old coins. A much poorer world.
Except that this is literally what Gold does.
The ratio of one ounce of gold to one productive beef cow has held for a hundred years, and plausibly for around 5,000 years.
A single ounce of gold could purchase a quality tunic, sandals, and belt in Ancient Rome and still buys a fine tailored suit in the modern era.
https://findbullionprices.com/blog/gold-purchasing-power-wha...
This would be more convincing if it wasn't from a site trying to sell me gold. Do people really believe that the mechanization of clothing production in the industrial era has made no difference to "real" prices?
(Rome definitely had inflation crises!)
If you have a brilliant technical solution that requires throwing out all conventional economics, you don't have a brilliant technical solution. Bitcoin is rotten to its core and every excuse you make for it proves the point.
>For most of human history the money was stable.
Absolutely ridiculous. People have been counterfeiting and debasing money for as long as there has been money.
Why does everyone assume that we're the ones keeping money under the mattress, not the ones who would have been paid by money otherwise not spent? All transactions have two sides, no?
> Deflation is a good thing, it rewards delayed gratification.
"Delayed gratification" is also provided by investments producing returns. An economy with lots of investors will outperform one where people stuff their cash into their mattress, and deflation makes it very hard for potential investments to beat that strategy.
> For most of human history the money was stable.
[citation needed]
The Spanish empire was driven to collapse by hyperinflation. Even in the US, there were financial collapses in the 19th and 18th century. Bank runs have been a thing for as long as banks have: https://en.wikipedia.org/wiki/Bank_run
Your premise is based on faulty assumptions. The existence of credit itself is what causes monetary instability, and without credit the world would look very different.
> The existence of credit itself is what causes monetary instability, and without credit the world would look very different.
Indeed. Credit is money; ultimately anyone can expand the money supply with an IOU.
Money is destroyed when a loan is paid back. Private credit does not expand the monetary supply permanently. Only the state can increase the money supply.
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credit does provide a kind of flexibility that is sometimes needed, though. However, predatory lending, and the endless stacking of recursive loans, and government money printers are a massive stability issue that we're running into globally, and have (as you say) run into multiple times, historically.
My thought on this would be a dynamicaly stable currency. estimate debt and transaction activity, and the more debt and more liquid activity there is, the more deflationary currency should be. the less debt there is, and the less of a percentage of the money is actually in-use, the more inflationary the currency should be. this, though, is fairly off-the-cuff.
The right thing would be to have 0 change in the value of money as long as the right amount of money exists.
The right maount of money is the amount of money we as normal humans need to work with (buying and selling stuff).
Inflation and deflation are results of too much money or too little money in comparision to the production capability of a society.
If i save today for my retirement and money gets less valuable when i'm retired, i have to give more 'saved' capacity back to get the real capacity (people taking care of me) and if i have more value, the others have to do more for me.
Controlling this is 'work' from experts and is not solved by bitcoin btw.
That only makes sense if money is a durable good destroyed by use. But money is improved by use and lost when put under a mattress. In economics terms, MV=PQ, and your proposal sets V low, which harms Q (goods available for sale)
No, no. The issuer of your money is really, really happy when you don't use the money. Because that means they can issue more money, without causing inflation to spike.
..and, you think that covers both individual and collective good?
..balance in all things. Neither being completely stingy, individually, nor being excessively spendy will benefit us, individually or collectively. ..but there are times for either.
I wonder if there's a way to quantify that and put a variable on the conditions, and have an inflationary/deflationary currencynthat is dynamically stable depending on conditions.
..i mean, individually, most people will eventually spend, if they have much saved and it benefits them to do so. but occasionally, we do need a kick in the pants. whenever the economynis in gridlock, that's the time for inflation. ..but when people are spending excessively, it's a time for deflation, which discourages taking on debt, and pushes the economy towards real wealth. rewarding long-term thinkers is valuable, and has a very broad effect on society.
Historically, as far as I am aware, there was never a situation when deflation coincided with good things happening.
A healthy amount of inflation keeps the economy going.
That's like saying stray dogs keep you in shape / running … because you don't want to be bitten.
This can be said about many conflicts between the individual and society, though. In many ways we are prevented from just taking what we want and “keep us in shape” because if everyone did the same it would be a problem.
I mean, cardio is Rule #1 of the zombie apocalypse in Zombieland.
> For most of human history the money was stable.
Wildly inaccurate, thanks to forgery and coin shaving - sometimes even governments officially reduced the silver or gold content to make more money out of their coin reserves. Even when proto-banks began issuing letters of credit, the quasi-fiat letters were subject to loss of confidence.
However, the availability and quasi-fungibility of other silver/gold currencies meant that if you didn't trust Edward's penny, you could use a Dutch penning instead. That provided an alternate path to dampen inflation, as long as the dominant currency was coinage.
But it was equally hard to buy a pig or a new suit with silver pennies by the 20th century. Bank notes, even when theoretically backed by exchange for their value in precious metals (the Gold Standard), were even easier to forge, and suffered from "loss of faith" inflation (runs on banks meaning they couldn't practically be exchanged for 14 pounds of silver pennies).