> For starters, tell us why this is inherently bad.
Deflation, by providing a risk free return for sitting on currency, leads to a slowdown in the real economy by reducing both output (reduced consumption) and productivity (reduced investment).
A fundamental, but slightly tangential question: is that a bad thing?
What if modern societies are running too hot and need to cool down? 'Reduction', 'slowdown', 'productivity loss' -- these are negative in a purely economic context. But economics is a means to an end, not an end in itself. The end, I believe, (to borrow an American term) is the 'pursuit of happiness'. I don't think modern, developed societies are doing very well in that particular pursuit. It feels as if we're on a treadmill -- try to run faster and it turns faster, and you need to keep running faster just to stay on it.
This may not apply to developing societies, who are still grappling with the lower layers of Marslow's hierarchy like food, health and education, but doesn't it seem like we have overshot? When we can afford to obsess over the number of cores or dots per inch on a handheld device, I think we can afford to slow down a bit. Perhaps a deflationary economy is just what we need.
People shouldn't feel pressured to keep producing despite having ample savings just to keep up with the wealth erosion caused by inflation. /opinion
Also: if the Bitcoin unit had been redefined so that the maximum number was 21 quadrillion, we might not have this debate. Nothing's changed fundamentally, but it is a number that for a laymen is a lot closer to infinity than 21 million.
Some people will choose to buy 2x as many t-shirts, making them (roughly) 2x happier. Or some people will buy the same number of t-shirts and have extra money to do other things they want. And most importantly, some people who couldn't afford t-shirts now can. But nobody is forced to chase material goods, they buy what they choose to.
The fact that this process is replicated across virtually all products in the economy is what lifts people out of poverty. We still have plenty of people struggling to make ends meet in the USA, something like half of all people live paycheck-to-paycheck.
The only people who benefit from deflation are those with large amounts of capital and no debt, which is an incredibly small portion of the population that isn't struggling under the current system of low inflation.
I used to worry about this aspect of bitcoin but now I just think, let it happen. Maybe a world in which we aren't forced to consume just to keep our net worth wouldn't be so bad. Maybe we don't need investment in yet another company selling more useless crap we don't need. Maybe we don't need to work five days a week to be happy.
> Some people will choose to buy 2x as many t-shirts, making them (roughly) 2x happier
More choice has been proven to lead to greater dissatisfaction. Aside from better healthcare I don't think our modern world makes us any more happy and fulfilled.
Intentionally slowing economic growth is a cruel sentence for those less fortunate than yourself so that you can be "happy".
So what you're saying is that inflation leads to deflation -- did I get that right?
"Use it or lose it" is a powerful motivator.
1. Money does not have to be fiat money to be inflationary. The government could achieve the same end in a fairer, more controlled manner without deceit simply by issuing a wealth tax, or a currency tax. However this would reveal the robbery too plainly and thus be unpopular. Inflation is an easier way that relies on deceit, sophistry, and obfuscation.
2. The people who benefit the most from inflation are people in government (who can fund themselves without taxing the populace) and banks/borrowers (who can create money to lend without the explicit cooperation of savers.) Neither group engenders sympathy.
3. Saving is a good thing and we need more of it. Many of society's problems can be directly traced to a lack of savings: pensions for the aged need to be provided because people do not save enough during their working years; health care must be provided because people do not save enough to be able to pay for it themselves; and investments must be funded by government because the savings are not available privately. Inflation discourages savings.
4. The wording "risk-free return for sitting on currency" is deceptive, implying that people who can have a risk free return won't work. This is not true and is best illustrated by computer technology which has been undergoing deflation since its inception decades ago. One can simply wait five years and likely be able to obtain today's hot, expensive technology for very little, likely for free. Yet despite this risk-free return for sitting on currency, people still choose to spend on technology they know is depreciating.
5. Contrary to the deception promulgated by those who profit from inflation and by the people who are deceived by them, a deflationary currency would encourage saving and sound investment while discouraging speculation and irresponsibility. For example, rather than allowing venture capitalists to fund risky new ventures with their own money, our inflation-funded government officials use public money to fund politically-connected companies like Solyndra. In a hard-money world, government would be a lot smaller, more focused on providing the services the public actually agrees to pay for, while the general populace would be more responsible and future-oriented, knowing that their savings now will determine their retirement.
For more on this, see the writings of Murry Rothbard, e.g. http://mises.org/daily/1829.
And no, I'm not saying Bitcoin or a return to the Gold Standard is the future, just that it's foolish to think a currency of limited supply "just doesn't work". At one point, it was completely natural and obvious to everyone that the supply of money was and should be limited.
[1] https://philebersole.wordpress.com/2010/11/17/inflation-thro...
Right, Bitcoin wouldn't be deflationary if the economy simply stopped growing.
How is it 'risk free return'? What guarantee is there that the currency will continue deflating?
In the case of Bitcoin, the return would not be risk free. In the long run bitcoins would gain in value at roughly the rate of increase in gross world product. Bitcoins value would fluctuate at least as much as that of a global stock index fund. There would be added volatility due to changes in demand for money.