Comment by white_devil | Hacker News Reader

Comment by white_devil | Hacker News Reader

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You sure are biased against Bitcoin and the like.

> this analysis misses the time dimension of money: lending, borrowing and interest [1]. Keynes knew that, and before him Marx, and I bet someone before him too. And in this aspect, I find Bitcoin to be an irreversibly brain-damaged, if interesting, experiment

So we went straight from an analysis (what was it btw?) "missing the time dimension of money" - according to you - to Bitcoin being a brain-damaged experiment. What exactly was the logic there?

> a massively deflationary currency .. that is even today failing to accommodate the mildest exponential growth

How does a currency "accommodate exponential growth", and why should it? Are you saying Bitcoin can't be used for lending etc because it's "deflationary"? Don't you think it would be possible for lenders to estimate the risk involved in using (deflationary?) Bitcoins, and then pricing their loans accordingly?

> When your currency gains value by the hour, actually borrowing and trading and doing capitalist things are losers' propositions.

I can't see a problem with a currency gaining value by the hour. If you hold a currency that keeps gaining value, then your purchasing power keeps increasing. Why is that a bad thing? Everyone would be happy to trade in such a currency.

If it were losing value by the hour, well then, yes, people would be reluctant to trade in it.

> When your economic theory is still getting an erection over the gold standard, like some 19th century robber baron, you know you just don't have the economic chops to do it.

Care to tell us what's wrong with the gold standard, and why is anyone who supports it a robber baron?

> For you all evil's root is either the government or fractional reserve banking, so I'm obviously wrong.

Care to explain why the government and fractional reserve banking are good for us all, then?

> I can't see a problem with a currency gaining value by the hour. If you hold a currency that keeps gaining value, then your purchasing power keeps increasing. Why is that a bad thing?

It is bad for several reasons. The easiest to grasp is that people tend to keep their money in their hands (hoarding) if that money is acquiring value by itself. If people don't spend their money, or lend it, the economy suffers.

> If it were losing value by the hour, well then, yes, people would be reluctant to trade in it.

If they have a choice of many currencies, yes, that can be a problem. But with legal tender the contrary is true: When there is high inflation people will spend all their money as soon as possible, before it loses value. Too much inflation is bad too, but some inflation is good.

> Care to tell us what's wrong with the gold standard

With the gold standard the supply of money is completely independent of the need for money. The discovery of a great source of gold will bring inflation; an expansion of the economy without a corresponding increase of the money supply will bring deflation. The same would be true with bitcoin and bitcoin mining.

>> I can't see a problem with a currency gaining value by the hour. If you hold a currency that keeps gaining value, then your purchasing power keeps increasing. Why is that a bad thing?

> It is bad for several reasons. The easiest to grasp is that people tend to keep their money in their hands (hoarding) if that money is acquiring value by itself. If people don't spend their money, or lend it, the economy suffers.

What I have never understood about this argument is people can't eat money, they can't sleep under it, they can't do any number of things with it. What they can do is buy things, like food, which allow them to do the things they desire. Having a deflationary currency is pro-citizen, it is pro-poor, and pro-middle class.

These classes are primarily uninterested in "investing." What they are interested in is saving. Saving to go to college, to buy better accommodations, to go on a vacation, to stop working two jobs, etc... They have no interest in complex inflation protection vehicles.

You may say: you are being silly, you don't understand how the financial system works! Maybe I don't, but neither does a large percentage of the population. Shouldn't our default policy always be about protecting those most vulnerable? Those most likely to be exploited? Are we doing that now? Would a deflationary economic system be to their benefit? I think so and so did the creator of bitcoin.

Having a deflationary currency is pro-citizen, it is pro-poor, and pro-middle class.

People who have a high amount of debt relative to income (generally the poor, the middle class, governments) benefit from inflation, not deflation, as they can spend full value money today and pay it back with diminished value money later.

Your concept of the poor as savers benefitting from deflation because they save money and stick it in the bank directly conflicts with the core definition of "poor".

Well, why are we in this current situation? Because at the margin at very low income levels it makes more sense to borrow than save. However, in a deflationary system it makes more sense to save than borrow. QED

You make it look like poor people are not saving because of ill will. In my experience, poor people don't save because they don't have any discretionary income, as in, you need to eat, have a shelter and clothes, and your income barely meets those needs.

Even when there is surplus income in an inflationary system it makes zero sense to save it outside of an inflation protected vehicle. It makes more sense to simply spend it and borrow when you are short. This isn't "ill will." It is a natural consequence of inflation.

It only makes sense to save when there is enough income that the risk of losing savings from a) bad investment or b) inflation is lower than the expected payoff.

You're right, it doesn't make sense to keep $BIG_BUCKS lying around on an account somewhere, losing value to inflation. It's a better idea to seek a return on that kind of money.

But saving makes sense even just to prepare for unexpected expenses. We're not talking about hundreds of thousands of dollars here, in most cases, it's not even tens. Barely scraping by might be a bit of an alien concept to someone pulling in $250K/year from programming.

> People who have a high amount of debt relative to income (generally the poor, the middle class, governments) benefit from inflation, not deflation, as they can spend full value money today and pay it back with diminished value money later.

But they keep having to pay more for Stuff. In other words, their purchasing power keeps decreasing, unless their wages rise to compensage for inflation. Deflation "means" an increase in purchasing power, which means getting more stuff for your money, which is.. good? What's not to like?

@timtadh

> Having a deflationary currency is pro-citizen, it is pro-poor, and pro-middle class.

How so??? With a deflationary currency rich people just need to keep their money at home (not even the bank) and they become richer in real terms. Indebted people see their deflationary-currency-denominated debt become more and more difficult to repay. Home owners see the resale price of their home come down. Poor people have less opportunities to work because people don't need to invest their money to keep their real value. How can all this be pro-citizen?

> If people don't spend their money, or lend it, the economy suffers.

Do you think people buy stuff because their currency is steadily losing value, or might it be because they need or want stuff?

> When there is high inflation people will spend all their money as soon as possible, before it loses value. Too much inflation is bad too, but some inflation is good.

Your average Joe off the street has no clue about what inflation means or what the current official (understated) rate is. You're talking about a situation where it's obvious to everyone that they just should not hold on to the currency they have. Think hyperinflation.

> With the gold standard the supply of money is completely independent of the need for money.

The need for money? Well, if gold is money, then you don't "need money" because you already have it. There's no need to worry about your money having lots of purchasing power either, that's just a good thing.

> The discovery of a great source of gold will bring inflation;

And conjuring up trillions of quatloos out of thin air will not?

You're saying that the money supply increasing without a corresponding increase in economic activity will cause your currency's purchasing power to dwindle? Well yeah, that's about right. But what exactly is supposed to be the problem you're talking about here?

> an expansion of the economy without a corresponding increase of the money supply will bring deflation.

Yyyep. Again, what's the problem?

> The same would be true with bitcoin and bitcoin mining.

Ditto.

> Do you think people buy stuff because their currency is steadily losing value, or might it be because they need or want stuff?

So you think that people don't think twice about buying the newest PC or phone, knowing that they will be able to buy it in 6 months at a lower price? Ora that buying a home now can be bad or good, depending if prices are going up or down? I don't know your average Joe, but my average Jane knows perfectly well what inflation (or deflation) is :)

People buy stuff _because_ they need or want it, but they buy it _when_ they think it's a good time to buy it. Evaluating "a good time to buy" depends on many subjective factors, and (perceived) inflation is an important one.

> People buy stuff _because_ they need or want it, but they buy it _when_ they think it's a good time to buy it.

If you need a computer right now, you'll buy it now. But overall, people only really need a handful of things, like sustenance, shelter, healthcare etc. No one needs some cheap trinkets from China or whatever. We're just trained to covet Stuff.

Economic theories or policies can't be based on the expectation that people are some kind of spending-automatons that will spendspendspend all the money they have, forever and ever, because inflation encourages them to.

A wise little worker ant will set aside quite a large percentage of his income, just in case a serious need for money arises.

The wise little worker ant doesn't have money, and he doesn't even know what money is. He will stash a quite large percentage of this harvested food (his production) until the stash is enough for the coming winter, for him and for the other non-worker ants.

The wise little worker person, on the other hand, will produce a production P, and get in return some money. Part of that money he will use for consumption C, and part of it he will set aside for savings S. But what he sets aside is NOT production, as in the case of the ant, it is just money - that is, unless the wise little worker person isn't so wise and actually stashes food or car parts or something like that.

The percentage of his production that he is not consuming (after having bartered it through the mean of money) is either going to the consumption C of somebody else, to the accumulation of capital (ie investment goods, thus investment I) or to the actual stashes of our world - stocks S.

If you think not in terms of money, but in terms of actual goods, you should agree that P = C + I + S (everything that is produced either goes to consumption, investment (capital) or stocks).

Now, what happens if C goes globally down, because everybody becomes a wise little worker person? In the immediate, S goes up - the "wise little worker ant" effect, if you will. But soon after, companies that create consumption goods reduce production - because nobody needs big stocks of consumption goods. Now, that could be compensated by increased production by companies that create investment goods - but who is going to request those investment goods, if it looks like people globally want to consume less?

So, what will actually happen is that C goes down, I stays the same or goes down, and after a little time P goes down. And our wise little worker person will lose his job, because less production + increased productivity (technology) = less jobs.

Now, notice that this works on a global scale. On a local scale, it can happen that C + I + S > P - this is for example currently true for the US, and in the long run US citizens will have to decrease their consumption, because that is overconsumption is only compensated by a billion wise little worker ants somewhere else who are actually lending part of their production to the US, in exchange of fiat money. But the decrease of consumption in the US has to be compensated by an increase elsewhere - otherwise, our wise little worker people will discover that ant-economy doesn't work for them.

In case you weren't aware of this already, our economies are imploding behind the scenes, and completely unsustainable.

> In the immediate, S goes up - the "wise little worker ant" effect, if you will. But soon after, companies that create consumption goods reduce production - because nobody needs big stocks of consumption goods.

Again, people will - and should - buy things they need. They may also buy some things they want, if they can afford them. If people stop buying Company X's products, then it will decrease capacity, and possibly go bankrupt, etc. There's nothing wrong with that.

You may decide to start producing and selling buckets of feces, but even though selling three hundred million of them at 50 dollars each would have a positive effect on the economy, it doesn't mean buying one would make any sense for anyone.

Our economies can't keep "growing" exponentially for all eternity, and that's alright. Nothing has been fixed since 2008, and the Status Quo's attempts at whipping up another housing bubble and getting us spending-automatons to spendspendspend are increasingly ineffective.

Ok - if you subscribe to the "happy degrowth" theory, that changes everything. But that has nothing to do with fiat money or gold standards; on the contrary, I would argue that fiat (ie, government controlled) money would make it much easier to make a transition to that new way of life.

But the transition to a happy degrowth FOR SURE can't happen with simple market mechanisms. At least you need to limit the working hours. At worst you need a completely controlled economy. Technological innovation + free market + degrowth = massive and unsustainable unemployment, that's for sure.

An economy that depends on endless, exponential growth not to implode is clearly not sustainable, regardless of what snarky terms you might come up with to ostensibly describe my position.

My position is that of common sense.

"So you think that people don't think twice about buying the newest PC or phone, knowing that they will be able to buy it in 6 months at a lower price?"

That seems like a poor example since the cost of technology is constantly decreasing.

People still buy stuff even though they could wait because they need (or want) it.

My point is exactly that people buy things because they need or want it, but, when prices are expected to fall, they wait longer ("when") than when prices are expected to increase or be stable - not that they don't buy at all.

Waiting longer means a decrease in consumption, and less (aggregate) consumption means less (aggregate) production, which also means less total jobs even if productivity is stable (not to mention if it is increasing, as it is because of technological innovation).

I can't see a problem with a currency gaining value by the hour. If you hold a currency that keeps gaining value, then your purchasing power keeps increasing. Why is that a bad thing? Everyone would be happy to trade in such a currency.

Everyone would be happy to sell in such a currency, but why on Earth would anyone want to buy with such a currency? The only currency that is good for both sides of the equation is the one that is stable in value.

Also (to tie to a comment above this one) a currency which is gaining value quickly is highly regressive to the poor. The poor have to spend their limited means in such a currency - they have to spend substantial fractions of their working capital on consumables.

Conversely, the rich don't. In fact, above a key level depending on how quickly it gains value, the rich functionally never lose any money - they can hold such levels of it that the amount they spend on food is rapidly eclipsed by the increase in value in their wealth.

Of course, this sounds good and is somewhat true with normal currency via investment but there's the rub: with a deflationary currency you don't have to invest. You don't have to put your money in the bank, or loan it out or indeed engage in any type of productive activity to get wealthier. The poor are doomed to work all their lives because they can't get above the magic level of wealth where they don't have to, meanwhile those with the piles of wealth dispense tiny fractions to them to buy necessities. It entrenches a stratified society in a way an inflationary system does not (which is not to say that inflationary money puts us all in the free and clear, but it's better).

> The poor are doomed to work all their lives because they can't get above the magic level of wealth where they don't have to, meanwhile those with the piles of wealth dispense tiny fractions to them to buy necessities.

A historical example of how bad a too-valuable currency can be was the situation surrounding the Free Silver Movement, a Populist-Progressive plan to make the gold-based late-19th-Century American currency inflationary by increasing the amount of cheaper silver in circulation. This was popular because it would help deeply indebted farmers pay back their loans. William Jennings Bryan made a wonderful speech, the Cross Of Gold speech, on the issue: "You shall not press down upon the brow of labor this crown of thorns; you shall not crucify mankind upon a cross of gold."

http://en.wikipedia.org/wiki/Cross_of_Gold_speech

http://en.wikipedia.org/wiki/Free_silver

In the extreme limiting case, the money economy based on the deflationary currency freezes to death: The rich are left holding money nobody else wants when the majority of society goes to some other currency that actually meets their needs.

In the non-Bitcoin world, the majority usually moves to another currency (a 'hard currency' like USD or Euros) when the local currency is hyper-inflationary toilet paper, but hyper-deflationary Super-Gold (Super-Duper-Super-Gold!) is, as has been explained, just as bad, and so would provoke the same reaction.

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