I guess it depends on what someone wants Bitcoin to be. If it's supposed to be an investment to retire on, then deflation is good. If you look at it as a mere transaction tool supposed to further economic activity, deflation is bad.
Given Bitcoins fundamentals I'd say the latter should look for a different coin. There are enough out there for that.
Can you elaborate on this point for me? I'm not sure I understand your reasoning here.
I'm referring to the classic argument for inflation after which the economy contracts if there is too much money sucked out of circulation. One reason why this can happen is the expectation of money increasing in value. The inversion of that would be to slightly inflate the money to keep the circulation stable. At least that's the theory as you get it taught :-)
that's what they teach 😉
The root of these parables I think goes back to the idea that anyone in or close to the banking system has a lot to gain by people believing this. (If you controlled a currency, and could decide who gets to have new units, you'd want people to think there's a purpose to creating new units too.)
They have it inside out. People sit on money as a consequence of bad economic conditions. (In a bad economy, it's more common that a person needs to save and less common for them to have an excess of capital to spend or invest.)
So they try to pretend the correlation is a causation, as a little trick to make it seem like there's evidence.
The idea that money could increase aimlessly to the point of bringing the economy to a halt...
I mean, for one I hope that's not true, because if decent economic conditions depend on a room full of guys fidgeting around with the currency, then we just always have a top-heavy hierarchical world.
And it doesn't check-out intuitively imo. As it goes up, you have more incentive to spend and invest (and this is the process by which a recession ends, now people are spending again). The higher it goes, the more incentive. So it's self-balancing, there's no possibility of the "vicious spiral" that the Keynesians try to scare people about.
(The vicious spiral is probably a projection for what happens to fiat currencies when there's too much inflation and people start to lose confidence.)
Indeed, emphasis on that:-)
I guess the fundamental problem is that you can't just take the textbook and then it tells you how to act/react in every situation. It needs management, hence "a room full of guys" to change course. In terms of correlation/causality you are probably right, but the issue is I guess that Keynes explained it pretty well and intuitively with his model. And not just that, but it gives people with a drive for power the chance of being more important than before. That's why the central bank concept will exist until they break too much or until something makes them irrelevant. Blockchain might be just that.
Not too long ago I started reading Martin Armstrongs blog. His explanation is that most of the economic cycle is based on confidence or generally expectation on what will happen next. The big problem here is that when the relevant players expect the situation to stay bad or even worsen, then they will stay reluctant to invest no matter the superficial incentives the market (or even politics) might offer. You only get out of this trap by changing the expectation and restore confidence. That's why I do understand the argument to a certain degree that you have to break the cycle with force/money printing.
But then again, Armstrong argues that the Great Depression was only the Great Depression because there was the expectation for the government to jump in. In essence, political central banks increase the problem. Question is: Can central banks ever be non-political?
Hmmmm. Well a lot of what they say will make sense, kind of like if you look at a model of the universe where the sun moves around the earth, both models have consistency and a coherent train of thought where it makes sense how you get from point A to point B.
So it's logical in how it builds off itself, and you'd probably find the Austrian model is too, but then eventually you'd find some assumption or building block in one of the models that isn't correct.
Right, even if it were true that "if a central bank does this, XYZ thing is the result", in practice you don't know what the bank will decide to do and you have no way to hold them to the textbook theories. (like if you give matches and gasoline to a 5-year-old, you don't get to be like "well the idea was he was going to do blah blah" 😉, it maybe was a bad idea to setup this whole possibility.) And even if we think the bankers are skilled and trustworthy today, it doesn't guarantee that corrupt people or even just people who would make poor decisions won't at some point be in charge of it.
So there's just no way to have really good long-term trust in it. And it doesn't seem like this should be a feature we want our economies to depend on, at least not now that we can have digitized currency without the centralized control aspect.
I'm absolutely with you on this. The only modus for a central bank that I could imagine is when the government budgets exclusively stems from the money printing and in return taxes got abolished. I believe one of the Austrians suggested that, but I'm not sure if that could even fund one aircraft carrier before the critical level for inflation is reached.
thanks for clarifying :)
I think inflation systems work best in tandem with deflation...just like breathing.....in and out.
I agree. At the end, when trying to direct the in/deflation process, you only end up causing frictions. The best thing is therefore to either do nothing and wait until it's over, or to improve the fabric of the economy in a way that such processes run off more smoothly or faster. Blockchain with its different approaches might indeed be a big step forward to that. It's really exciting to see how that will play out, although I am anything but an expert.