Hacker News Reader

Comment by fat0wl | Hacker News Reader

I've wonder about #2 though. We see the downsides of saving in an inflationary system, but a finite currency system... do we really expect that to be stable for 50 years, and if so, based on what precedent?

I was surprised to see BOA list "It's finite" as an advantage. It seems like this mentality is all anti-inflation (which seems justifiable) yet the alternative is taking a wildly experimental approach to savings. BTC hasn't proven stability within a month really yet, why trust it for 50 years? And then if you put in that 1 day's wage of Bitcoins, what happens when the market cap for BTC fluctuates? It won't always be in a steady demand, it will depend a bit on how many people are using it, no?

I am a doomsdayer also I think that it can only succeed if it always remains the same price or keeps going up, but the belief that this is possible is obviously intellectually malformed.

View on HN

>but a finite currency system... do we really expect that to be stable for 50 years

No, it's deflationary. And while deflation isn't "evil" in and of itself, it causes the same problems as inflation (in reverse, obviously).

For example, if Bitcoin are restricted to 21MM units, as the population of the planet increases, an individual's wages must decrease in Bitcoin terms to maintain their real value.

That means that prices for goods will have to drop as well, which leads to terrible menu costs, and hoarding (why buy my car now when it will be cheaper in bitcoin terms next year?) In a predictably deflationary environment, it's always better to spend your money "later".

yea i hear ya... i've always been wondering what fraction of current market volatility is due to speculation & how much is just the flaw of the deflationary nature exposing itself too soon

If in say 100 years human population growth stopped, would it still be deflationary? Surely the population cannot grow infinitely?

> In a predictably deflationary environment, it's always better to spend your money "later".

So if I'm saving up in a deflationary currency, it's better for me to wait upgrading my computer until the day before I die, instead of doing it now?

The thing with saying something is "always better later" is that it logically means that it never gets done, because there's always a "later" (until there isn't (ie. you die)).

>"So if I'm saving up in a deflationary currency, it's better for me to wait upgrading my computer until the day before I die, instead of doing it now?"

If you're maximizing your economy, yes.

In that case your original statement was inaccurate. It should have read:

> In a predictably deflationary environment, you maximize your economy by spending your money "later".

Which, in fact, is better said as:

> In a predictably deflationary environment, you maximize your economy by not spending money.

And that leads us to the obvious fact that saving up money in order to not spend them is absolutely pointless.

Okay but stop thinking in extremes for a second.

Imagine I need a car and I hear there is a 30% off sale in January. Yes, I'll wait. Im considering the lost marginal value to me (keeping my shitty car in December) vs marginal gain (saving 30%). That's what deflation feels like.

But as far as I can see, you wouldn't have bought the car without deflation (or a sale, as it were), because you couldn't afford it. So in this case it causes you to spend money that you wouldn't have spent otherwise.

Then the best possible job is to sell food. You're basically forcing people to give up currency that will insanely increase in value if they don't want to die..

hah yeah this is what i was thinking about too. if you follow deflationary logic through to the end it makes you think of a Mad Max kinda world. But they expect it to stabilize when it hits the cap, no? I don't know.... experiments that take hundreds of years to run. Why not just dollar-back it? lol, i know i knowwww, they hate that. But the Canadian gov has a cryptocoin, right?

Deflation doesn't eliminate the demand curve, it just shifts it a bit to the left. It reduces consumption. It reduces investment. It increases savings. It does not cause a 100% reallocation from consumption and investment to savings.

So people get wealthier, because they save more and consume less?

No. You failed to recognize two key points:

1) Savings erodes investment. Savings is the non-productive hoarding of cash. Investment is when one takes cash and deploys it in a way that creates value. In a slightly inflationary economy, a wealthy person can only remain wealthy if they deploy their capital in a way that creates more value for the entire economy. In a deflationary economy, they can get wealthier by doing literally nothing.

The net effect of this is a reduced pace of innovation for the whole economy.

2) My consumption is your income. Thus, if I spend less money, you make less money.

The net effect of this is a huge pile of pernicious effects (reduced economic mobility, reduced productivity gains, reduced innovation, reduced opportunity, reduced incomes for all, etc...).

"why buy my car now when it will be cheaper in bitcoin terms next year?"

Because you want to go on vacation this year?

Reply on news.ycombinator.com