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Comment by jackcosgrove | Hacker News Reader

> Rather, it was incredible to see the entire financial industry quickly rebuilt on top of sound money.

What is your definition of sound money?

It has been said many times but it bears repeating that a money supply that grows more slowly than the economy it is traded in will be deflationary. Deflation inhibits economic activity because money saved is worth more tomorrow than today even when not invested in productive enterprise. Deflation enriches existing asset holders at the expense of new entrants, even if those asset holders are just stuffing their money in the proverbial mattress. Economists consider deflation a terrible outcome for an economy; Japan has experienced it for thirty years now.

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> Deflation inhibits economic activity because money saved is worth more tomorrow than today even when not invested in productive enterprise.

What is the rationale for this? Because by that token, nobody would ever buy computers, because the money saved by not buying a computer today can go into buying a better computer tomorrow.

if anything, deflation is fantastic because it makes you think twice before rampantly consuming shit, which is going to be much better for the environment than the misaligned incentives of demand-side economics. (not that supply-side is any better).

Finally, inflation redirects real returns from the poor to the rich and deflation does the reverse. Japan (which has had net ~0% official inflation over the last 30 years) has had a stable GINI coefficient; the US has gotten worse and worse.

> > Deflation inhibits economic activity because money saved is worth more tomorrow than today even when not invested in productive enterprise.

> What is the rationale for this?

The rationale is explicitly stated.

> Because by that token, nobody would ever buy computers, because the money saved by not buying a computer today can go into buying a better computer tomorrow.

No, because then you lose out on the utility of the computer today.

The argument was about financial investments; that it discourages investments in productive enterprise since holding cash produces a real gain at low risk. Putting off buying future potential money via investment in productive enterprises because holding money gives you more value of money in the future with less risk than investment in productive enterprise and the liquidity of money now is not parallel to deferring buying a computer to buy a better one later.

> if anything, deflation is fantastic because it makes you think twice before rampantly consuming shit,

While you call it “fantastic”, that's just another way deflation depresses economic activity, discouraging consumption as well as productive investment. (Of course, discouraging consumption also further discourages investment itself.)

Your assertions are simply not borne out by historical truth, there have been periods of history where there was no inflation or deflation, where there was plenty of investment and growth. For example, post-civil war US. Similarly the 1850-1900 sweden free banking era. Oh. And Japan. Do you seriously think there is NO productive investment in Japan currently, simply because there is no inflation?

People grow and invest in things with only minor regard to whether or not there is inflation, just when there is inflation they invest more in dumber shit like juicero and theranos, because if you are on a moving compounding treadmill you have no choice but to participate in the casino.

> Your assertions are simply not borne out by historical truth

What assertions?

> there have been periods of history where there was no inflation or deflation, where there was plenty of investment and growth.

That...doesn't contradict anything I've said. I have not stated or implied that, in the absence of inflation or deflation, one would not expect productive investment and growth. I have agreed with upthread claims that deflation discourages economic activity, and also pointed out that the effect you praise of deflation discouraging consumption is an example of discouraging economic activity.

> For example, post-civil war US.

You mean the 1865-1867 recession (which also featured significant deflation, not “no inflation or deflation”) or the 1869-1870 recession (ditto), or the Long Depression starting in 1873 (ditto, again.) The post Civil War 19thC USA is actually a pretty good example of the association between deflation and poor economic performance, and definitely not an example (for good or ill) of a period with “no inflation or deflation”.

How can you claim the us had poor economic performance in that era? The country went from "having torn itself in two" to "becoming a international superpower" in 50 or so years. The rejection of reality implied by your selective analysis of economic history is truly astounding.

> deflation

You are making a lot of assumptions. But yes, a productive enterprise has to outperform doing nothing to be successful. And no, it is not possible to generate unlimited wealth simply by investing in a deflationary currency.

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